The biggest USP of ULIP-based child plans is that there is no capping on the maximum deposit amount in a year.
Becoming a parent is the most life-changing event that many people experience. You are suddenly not just responsible for yourself, but also for another life who depends on you for everything. When getting ready to embark on this exciting new adventure, preparation is key. Both before the baby arrives and in the weeks after, it’s especially helpful to be ready for the financial changes to come. It’s estimated that total child-raising expenses from birth to age 21 for a middle-income Indian family are very high. Although the range of expenses across families is wide, the 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. As per a recent report by Principal Retirement Advisors, children’s education and marriage (68%) are the two topmost financial goals in India among new-parents followed by buying a house (55%).
Saving for Your Child’s Secure Future
Saving for your child’s future is one of the most important financial goals for a parent. That is why it should be done with the most care and research and not on ad-hoc planning. Usually, parents are in a fix as to how they should invest for their children especially regarding the investment avenues they should use. And then, it is never too early to talk and plan about your kid future as you never know after growing up what plans does your kid has for himself. The biggest hurdle that most parents face while planning and saving for their kid’s future is funding the higher education, typically the post-graduate or master’s studies. While most parents are quite aware of the fact that they would require a huge corpus for funding the education, many parents find it difficult to estimate the costs they would incur.
For instance, if you expect your kid to take up specialisation overseas, you have to factor in that cost. 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. While it may not be possible for everyone to fully save for all their children’s education expenses, every little bit can help.
Investing in ULIP Based Child Plans
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. 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 funded 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. Under some ULIP-based child plans the dependents even receive a lump sum amount on death of the parent along with regular income to meet the everyday expenses. 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.
Unique Triple Benefits of Child Plans
Few ULIP-based child plans come with unique triple benefits. First, under ULIP-based child plans the future premiums of the plan are paid by the insurer on parent’s death. Second, monthly income is also provided to the family in order to fund child’s education on death of the parent. Third, a lump sum payout is also made to the family on parent’s death to meet the daily expenses.
Further, some ULIP-based child plans are not gender restricted and can be bought for both girl or boy child with the maximum entry age as high as 18 years. These plans in comparison with other child plans provide the maximum flexibility to the investors as the entire invested amount can be withdrawn after 5 years. The investors can also easily avail premature closure facility any time after 5 years and there is no penalty on premature closure made after 5 years. The biggest USP of ULIP-based child plans is that there is no capping on maximum deposit amount in a year. The investor can make investment as per individual financial condition. Not to forget, premiums paid against investment in ULIPs qualify for tax rebate under section 80C of the income tax. A maximum of Rs 1,50,000 is allowed under section 80C.
Popular Child Plans
Some prominent plans that parents may choose to invest in include HDFC Life Click2Wealth – Child, Edelweiss Tokio Wealth Plus – Rising Star and Max Life Insurance Online Savings Plan – Child Plan. All these plans are ideal for parents who wish to make provision for – Academic expenses that occur prior to college education, Specific goals like college fees or marriage expenses etc. and all miscellaneous and extracurricular expenses that occur during college/school.
(By Vivek Jain, Investment, Business Unit Head, Policybazaar.com)