ULIP-based child plans are one of the most sought-after investment products in the market.
What is that one thing which you as a parent wish you would have known way before you became one? For many, it is just how expensive having a child can be. Let’s all face it, becoming a parent is the most life-changing event that one experiences in entire life. With the birth of a child, you are suddenly not only responsible for yourself, but also for your kid who completely depends on you for everything. When getting ready to embark on the exciting and adventurous journey of parenthood, being prepared is the key. Both before the baby arrives and in the months after, it’s especially helpful to be ready for the financial changes to come. Though the variety of expenses across families is wide, the harsh truth is that adding a little one to the family is ‘quite expensive’.
Apart from the regular lifestyle expenses, education has become a significant cost head for most urban middle-class households with kids. It is never too early to talk and plan about your kid’s education as the kid may go overseas for higher education or may choose a premier institute in India. Whatever he chooses, you must have the corpus ready, always. The biggest challenge is in the form of funding the higher education, typically the post-graduate or master’s studies. Even if many parents are aware of the need to create a huge corpus for education, most parents find it difficult to estimate the costs they would incur on their kid’s education.
Let’s take an example that, in case your kid wants to opt for a post-graduate programme in management at a premium institute like IIM 15 years from now, then you must be prepared to pay Rs 93 lakh as it costs Rs 23 lakh today. Just in case you expect your kid to take up specialisation overseas, you have to factor in that cost too. If your child aims to go to the US for higher education, consider the rate of education inflation (around 5 percent) in the US and the foreign exchange rate movement in the US dollar and Indian rupee.
You can start by investing within 60 to 90 days of your child’s birth so that you can easily accumulate larger sums that may not be possible for you in later stages of life. As per industry experts, the multiplier effect in the power of investing comes from the investing duration as longer time horizons prove to show higher multiplier effect.
Initially, you can start by investing in Unit Linked Child Plans and gradually move to de-risk the policy to safer funds before the maturity term. The biggest advantage of ULIP-based child plans is that they come with the waiver of premium rider wherein in case of sudden death of the parent of the child, the all future premiums are waived off and are rather paid by the insurer himself. Unlike other child plans, the policy does not gets discontinued and rather it continues in the same manner. The insurer on behalf of the parent pays all the future premiums till the policy term. With this, the money keeps growing and the child does not fall short of corpus at maturity of the policy. This is one prominent reason why ULIP-based child plans are one of the most sought-after investment products in the market.
As a parent, it is equally important for you to adopt a well-planned strategy for choosing between short, medium, and long-term funds as and when required. Whether you are expecting or are currently adjusting to your new life as a parent, consider this checklist as a starting point for adapting to your new financial reality. Making the necessary financial arrangements now will minimize stress down the road and allow you to spend the most time loving and caring for your new-born.
Here is a competitive analysis of some of the popular Child Plans available in the market offering ensured returns to the customers.
(Updated as on: 7 June 2019)
(By Santosh Agarwal, Chief Business Officer-Life Insurance, Policybazaar.com)
(Disclaimer: These are the personal views of the author. Please consult your financial advisor before buying any plan)