BasuNivesh

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Today I will explain, is Child Insurance actually need or not. It is one of the biggest emotional tools used by agents to sell Child Insurance Products. However, when you actually look into the requirement then you may think twice before buying child plans.

First basic thing what I will deal with is, why one need Insurance? It is required when something happens to him; his family may not be in a financial loss. Hence, to protect the loss you need Insurance cover. However, in case of child insurance, insurance required for a father not on a kid’s life (Few child insurance products covers kid’s life risk). So think insurance in view that if something happens to you, how much your child will be in trouble in terms of money.

The major point, what Child Insurance plans offer is “Premium Wavier Benefit”. This benefit will come into effect when the insurer (in child insurance usually parents) dies before the maturity period of a policy. Future premiums, whatever need to pay is totally waived and in some plans your kid will get a yearly lump sum as a maintenance and after the policy year end kid will get as usual benefit. Looks interesting feature. However, if you opted for higher Insurance cover by purchasing Term Insurance then this offer can easily be fulfilled by investing the claim amount into secured avenues. So it is not the one reason or benefit to purchase child plans.

Now choosing Traditional Plans and ULIPs for child plans. Again a lot of drawbacks if you go with either of the products. Traditional Plans may give you low returns and ULIPs have more cost factor attached with them. So, if you purchase Traditional Plans then how can you beat the future Educational Inflation and Marriage Inflation of your child? With the kind of raising educational expenses and marriage expenses, it is not worth to go with Traditional Plans, which may hamper your Child Education and Marriage Expenses. Hence, it is not worth to go with Traditional Child Plans. ULIPs being costly when you compare with mutual funds and may not fulfil your insurance need, which is very much important in case of your untimely demise.

So, it is better if you go with Term Insurance (take equal to the present values of all future expenses of your kid’s-Don’t know your insurance adviser is able to calculate this) and start to invest in options like Equity, Gold and PPF according to your risk appetite. Hope this article made it clear the requirement of Child Insurance.

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About Basavaraj Tonagatti

Basavaraj Tonagatti is the man behind this blog. He is SEBI Registered Investment Adviser who is practicing Fee-Only Financial Planning Process and also an Independent Certified Financial Planner (CFP), engaged in blogging since 7 years. BasuNivesh blog is ranked as one among India's Top 10 Personal Finance Blog. He is not associated with any Financial product/service provider. The purpose of this blog is to "Spread personal finance awareness and make them to take informed financial decisions." Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. These should not be construed as investment advice or legal opinion."

Reader Interactions

Comments

  1. Srinivas

    It all depends on sum assured amount,but at least childs higher edu need are fullfilled.but in case of term plan u receive big sum ass amount which will be wasted anyway,it is like a lottery money,what about childs education?how many ppl are disciplined enough to manage big amounts?

    Reply

    • Basavaraj Tonagatti

      Srinivas-Will the money survive and provide financial support at least child get ready for HIGHER education? How you can say that term insurance maturity is definitely WASTED ANYWAY? People not disciplined enough to manage big amounts, so let them survive with less money?? what a logic sir ji??

      Reply

      • srinivas

        Basavaraj-In that case do u think IRDA is a big joker,letting companys to sell policies other than TERM PLANS?Companys just dont launch policies,without IRDA approval.

        Reply

        • Basavaraj Tonagatti

          Srinivas-Whether IRDA or Insurance companies, why I have to care? I buy the product which suites to me not for IRDA or Life Insurance company’s survival sake. At the end, my money is not for social cause (Like everytime central government makes LIC a scapegoat).

          Reply

  2. Srinivas

    Hi basavaraj,if parent dies sum assured is paid immediatelly+remaining premiums paid by company+sum ass and bonus paid once child attains 18 years

    Reply

  3. Srinivas

    Hi bavesh nice article,but what if i am not interested in term plan as many indians?am i not in risk ?child policy has its own benefits,it is best in savings and protection category.

    Reply

  4. MANGESH TARSARIA

    Dear Sir,

    I Mangesh Tarsaria, i want to know the policy details of
    LIC’s new plan 2015-New Children’s Money Back Plan (No.832)
    or
    LIC’s New Endowment Plan (No.814)

    and aslo suggest for the same

    my daughter have 1 year old. i want to do lic of my daughter

    Reply

  5. Ali

    Thanks Basu for the detailed review of the Child Insurance Plans. I had decided to buy one policy, but after reading your review, I rejected the idea. Thanks.
    Could you please advise me on few long term investment options. I want to diversify my investment but not sure how. I am more inclined towards, PPF, NSC, Mutual Funds, Fixed Deposit…. Please advise.

    Reply

  6. Abish

    Hi Basu,
    I recently started following information being shared over internet on Child Policy. I have a 1 yr old son and I am keen to secure the expenditures of future mostly education..Its difficult to assess the future cost of education, but I feel a Child Plan espl an endowment plans provides a safe & structured means of investment. This gives secured return at interval ie/ age 18, 20 yr etc. I dont know the LIC policy name exactly, but these were some of the features explained to me.

    I have a term insurance for myself and ULIP for my wife.
    I am not confident that I would be able to follow a balanced investment planning for a long tenure of 15- 20 yrs. Would you still advise me to reconsider going for a Child Policy ?

    Regards
    Abish

    Reply

    • Basavaraj Tonagatti

      Abish-If you are inclined towards child insurance then scarify your money by investing in such products. Reason is, they provide you the returns or in your words ‘an endowment plans provides a safe & structured means of investment. This gives secure return” around 5% to 6% and the cost of education inflation going by 10%. So try to invest more and keep in such products which provide you the return of savings account.

      Reply

    • Basavaraj Tonagatti

      Joseph-Let us say your age is 30 years and you buy the term insurance for Rs.1 Cr with a term of 30 years. Then you have to pay the premium for 30 years. In case your death occurs during a policy period then your nominee receive Rs.1 Cr. However, if your death not occur within policy period then you not receive any amount on maturity or closure of policy. These are pure risk taking products with no investment.

      Reply

  8. Ajit

    Hi Basavraj,
    Thank You for sharing info in very simple way. Kindly suggest me which one is best option to go with for childs future needs in current scenario.

    Reply

  9. waseem

    Thank You!
    Sir, thank you once again for writing such a great article on insurance the article proved very helpful.
    Better is to invest in real estate than in these futile things.

    Reply

  10. salmaan

    Hi BasuNivesh ,

    Thanks for this post, i want to know about children money back plan, Plan no= 832.
    i want to take this plan for my 5 year old son, can you please tell me whether to take this plan or not,
    or can you tell me which plan is good for my child future, waiting for your reply.

    Thanks

    Reply

  11. AMOL BHOSALE

    Hi,

    Can you please suggest the best investment or insurance plan for me & my children

    I have 4 members in my family…my self, wife, son & daughter..

    Monthly income : 18000
    City : Mumbai

    Regards,
    Amol Bhosale

    Reply

  12. Radhakrishna

    Hi,

    The plan is “Jeevan Ankur” not “Jeevan Surabhi” as i mentioned above. Thank you.

    Regards
    K.Radhakrishna Reddy

    Reply

  13. Radhakrishna

    HI Basavraj,

    Thanks for writing about child Insurance. I have taken LIC`s “Jeevan Surabhi” in the year 2012 and paid three premiams of Rs 20,650 per year for my dauther who is 3+ years old now. This policy is for 20 years term.

    I just would like to know from you about this policy. As this policy will start giving LA only after 10 years, so cannot tell how much i can get. Is this adivse to continue in this plan? Like in “Jeevan Saral” , is there any option for withdrawing from this policy after certain year by getting all the premium amount which we paid.

    I have Term Plan for me and life insurances , so that covers insurance. I am looking at investment purpose, so that once my dauther grows up, she will get good amount.

    Please adivce whether to continue in this policy or should i withdraw from this policy. Also let me know when can i get full premium amount paid in case I withdraw from this policy.

    Thanks & Regards
    K.Radhakrishna Reddy

    Reply

      • Radhakrishna

        Hi Basavraj,

        Thanks for writing about child Insurance. I have taken LIC`s “Jeevan Ankur” in the year 2012 and paid three premiums of Rs 20,650 per year for my dauther who is 3+ years old now. This policy is for 20 years term.

        I just would like to know from you about this policy (I search in your blog, but could not find any) . As this policy will start giving LA only after 10 years, so cannot tell how much I can get. Is this adivsable to continue in this plan?. As in “Jeevan Saral” , is there any option for withdrawing from this policy after certain years by getting all the premium amount which we paid.

        I have Term Plan for me and also life insurances , so that covers Insurance part. I am looking at investment purpose, so that once my dauther grows up, she will get good amount.

        Please adivce whether to continue in this policy or should I withdraw from this policy. Also let me know after how many years I get full premium amount paid in case I withdraw from this policy.

        Thanks & Regards
        K.Radhakrishna Reddy

        Reply

        • Basavaraj Tonagatti

          Radhakrishna-There is nothing special about Jeevan Ankur, it is typical traditional plan. So if you are satisfied with around 6% return then go ahead. Otherwise better first visit to your nearest LIC branch and ask them the surrender and paid up values. Based on those value think yourself which suites you better.

          Reply

    • BasuNivesh

      Sri-Thanks for your comment. Regarding the link you provided, I have found these doubts.
      1) Premium what they quoted for child plans are very less. In traditional plans it is bit difficult to get that much life insurance (Rs.45,00,000) for this low premium of Rs.1,20.000.
      2) Look at the mortality charges, they them self claiming a difference of Rs.1,55,000.
      3) Biggest claim about death benefit in the options of Term Plan+Mutual fund-In term plans+mutual fund investment, you are separating the investment with insurance. So in case of insured person’s death, he will get Sum Assured totally from insurance company and the value of amount invested. But they are claiming whichever is higher. It is not right.
      4) Regarding claim amount after 5 and 10 yrs returns, if you opt for higher term insurance then definitely you will get higher returns than what they predicted.
      5) If you thought to opt for ULIP too, expense ratios of ULIPs are still higher when you compare with mutual funds.

      Hope I cleared your doubts. Thanks for sharing the link too.

      Reply

  15. basunivesh

    Abhinav,
    Thanks for your encouraging words first. It is nice to hear that you too of same view about child insurance. Sure you can expect interesting posts in future. Keep reading 🙂

    Reply

  16. Abhinav

    Hi Basu

    Thanks for this post. I stumbled upon your post and found this to be really informative and in tune with your “Investor beware” theme.

    I myself am a financial planner and recommend a similar approach of term+ a combo of MF, PPF and gold to create a customised plan, instead of going for ULIP or endowment plans.

    Wish you all the best and looking forward to reading more of your posts!

    Abhinav

    Reply

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