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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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?
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??
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.
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).
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
Srinivas-This is what I wanted to hear from you :) Now, for how long the kid and insured family survive with that insurance claim amount?
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.
Srinivas-Savings is BEST when you survive till that child insurance policy period. What if parent die the next year?
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
Mangesh-You can refer both of plan details at my earlier posts New Children’s Money Back Plan (No.832) and LIC’s New Endowment Plan (No.814).
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.
Ali-If you have long term view of around 10+ years, then invest around 30% in products like PPF or Short Term Debt Mutual Funds. Rest 70% in equity oriented mutual funds.
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
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.
Sir, your article s very useful.
Kindly clarify, wat is term plans
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.
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.
Ajit-You must have equity allocation to beat the inflation of education.
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.
Waseem-Real Estate???
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
Salmaan-whether you are asking me this question even after reading above post? If so then I think my writing not impressed you.
Thanks for your reply , Actually i have read your blog but i am new to understand the ULIPs and term Insurance that why i have asked you..