As a parent, one’s most important goal would be to make sure that one’s children have a bright future and lead their lives comfortably.
By Manju Dhake, AVP Insurance 5nance.com
One of the most joyous moments in the lives of any couple is becoming parents. It is said that the arrival of a child gives birth to a mother and father. This parenthood brings a shift in their life stage with the additional responsibilities to be fulfilled as parents.
Every father wants to be a hero or role model for his child. Hence, he starts financial planning for the upbringing of his child. This includes planning for his/her future expenses such as funds required for education, for marriage, etc. As a parent, one’s most important goal would be to make sure that one’s children have a bright future and lead their lives comfortably.
A child insurance plan is a great tool for creating such financial security for the child. It brings in the corpus that is required at each milestone that’s planned for the child’s future. This plan is the best fit and tailor-made for educational needs. Unfortunately, most of the parents get confused about the available plan choices and are bogged down by various myths about child insurance plans. The following points help debunk the myths and bring in a reality check for better and informed decision-making.
MYTH 1: Child insurance provides coverage for the child only
The most common myth surrounding child plans is that the life insured is the child. Most of the child insurance plans cover the income-earning parent as the life assured, and the child as the beneficiary. The benefit associated with such a plan is that the child’s dreams are fulfilled, even if the parent is no longer around.
MYTH 2: Only lump sum death benefit is paid on the policy
It is a preconceived notion that on the untimely death of the Parent, the lump sum is paid as a death benefit on the policy and the policy terminates thereafter.
The very essence and beauty of a child plan is that it comes with a Waiver of the rider premium. On the early death of the parent, the future premiums are waived off and the policy continues. This does not impact the benefits to be received under the policy at maturity. These are additional benefits along with the lump sum that’ s immediately paid out on the death of the insured.
This is a good way to ensure that the family will not have to bear the financial burden after the death of the policyholder.
MYTH 3: Child plans lack liquidity
Child plans provide flexibility. These plans are available as traditional/money back policies and ULIPs. In traditional/money back policies, the periodic benefits are paid at fixed intervals as per the milestones that are envisaged for the child. Whereas a ULIP provides flexibility to withdraw after 5 years for any expenses incurred towards a child’s education or any other child-related expenses.
MYTH 4: Child plans are not very transparent
Under ULIPs which are market-linked child plans, all charges are clearly spelt out providing transparency to the policyholder. These charges can be related to fund management, administration, mortality, etc. The policy document gives a breakup of the various charges and the premium amount invested. The policyholder also receives a regular statement of your holdings, which can be monitored periodically.
MYTH 5: Payments are made only for higher studies of the child
A child insurance plan doesn’t levy any restrictions on the usage of the plan’s benefits. When the plan’s benefits are paid, they are not supposed to be only for the child’s higher education. It’s entirely up to your discretion on how you want to make use of the funds at the end of the day. If your child chooses not to pursue further studies or you would like to use the funds to fulfill some other commitment, you can do so irrespective of the original goal that it was intended for.
The objective of a child plan is to secure your child’s future by making funds available on the due date. It is recommended and deemed by the insurance company that the plan’s benefits would only be used for the child’s higher education.
I hope that the information that’s shared above is able to provide clarity on the myths about child insurance. So understand the reality and make informed decisions for your child’s future.
Take into consideration the dual advantages of a child plan. This not only helps you to create assured funds for your child but also help in lowering your tax liability. So, if you have a child and want to create funds for his/her future, a child plan acts as an ideal investment solution.