Becoming a parent is one of the most joyous occasions of a person’s life; especially as it is filled with the excitement of a newborn becoming a part of your world. Soon your child becomes the center of your world; not only changing your priorities but also your entire lifestyle and expenses. But once the excitement starts to sink in; as a parent we quickly realize the many responsibilities associated with becoming a parent and most importantly the financial planning required for raising a child.
At this stage you may have already done are or probably thinking of -
· Setting aside some money in an FD
· Opening a PPF account in the name of your child
· Mutual funds (if you have really thought through your investments)
If this is your train of thought then it is an excellent step in the right direction; especially as investing earlier on; gives you much more time and can make it much easier to secure your child’s future needs. However there is one critical factor which as a parent we very often wrongly assume; -- which is that we will always be around to invest for our children. Unfortunately life is uncertain and to properly secure your child you would need to factor this point in; while making the financial plan.
The right questions to ask yourself while making the financial plan of your child could be- What might happen in the case of an unfortunate event?
· Will your child’s future to be financially secure if you are not around?
· Will the current investment really be sufficient to help your child live comfortably?
Sadly the answer very often is NO. While just the thought is terrifying; it is important to assess all possible risks today and make the right investments; so that your child is reasonably protected against most future risks.
So what is a solution to this? – Quite possibly a child insurance plan.
Here is why we feel that a child plan is something that necessarily needs to be added; to help cover the child in both case scenarios - whether the parent is there or not.
Scenario 1 - When the parent is around
There are various other expenses such as - buying a house, retirement, medical emergencies, and so on. So while you savings may seem huge; if you allocate them separately for all your needs; your savings may become in-sufficient to cater to all your expenses. Hence a child plan will-
· Force you to separate the savings- A child plan requires you to pay regular premium and also necessitates a lock in period (such as 5 years). During this time the child or the parent cannot withdraw the money and the parent needs to continue paying regular premium for these years. This forces you to separate savings for your child from other expenses; organize your other expenses and create a disciplined saving habit; which you will be thankful for once your child grows up.
· Help secure future educational needs - The cost of education is of prime concern as it has been increasing at rate faster than inflation. Child plan offers cash value at maturity; and will invest your money in the way you want; to help it grow. Hence by the time your children are ready to go to college; with a child plan added in their portfolio; you will have enough to fund their future; and assist them financially to be able to follow their dreams.
Scenario 2 - A child plan when the parent is not around
Statistics state that incidents of death by road accidents in India have been increasing over the past few years. Life uncertainty is not something you can control but the only way you can protect your child is by financially providing for him; even when you are not around. A child plans will ensure this to a certain degree by providing -
· Funds at pre-fixed intervals- Any other insurance will only offer a lump sum on untimely death. A child insurance plan is best suited as not only will it offer guaranteed lump-sum assured in case of unfortunate event, but the policy does not end here. After this the insurance company will provide your child funds at specified intervals as planned under the policy.
· Premiums waived off - While other life insurance policies will end in case of unfortunate event; on the other hand a child insurance policy continues. The premiums are waived off and the insurance company will continue investing this money on behalf of the policyholder; hence the child still gets all the benefits specified in the policy.
In conclusion a child plan protects your child both ways even if you are or are not around; provides security against risks, inflation and also helps fund your child’s future; making it a crucial element in financial planning for your child. Like the ICICI Pru SmartKid plan; which can be easily be bought online for as low as Rs 4000 monthly premium (taken for 25 years) will continue; even after the death of life assured; provided all the dues have been paid earlier.