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Child Insurance planPlanning does not necessarily mean about what you wish your child would grow up to be, or have certain characteristics, but it also essentially means you as a responsible parent having various responsibility to fulfill that would help him to grow better in this world.

The first thing that strikes is providing for education (graduation as well as post graduation).

The most often repeated statement, Assume that a two year MBA program in a leading business school costs Rs 5,00,000 at present. Your child is five years old now and will pursue the management degree at the age of 20 years. This gives you a time frame of 15 years. Assuming that the inflation rate is 10% per annum, the education would cost Rs 2,088,624. Now that seems a handful, doesnt it?

he dynamics of planning for the childs future have changed radically over the years. The conventional method of providing for the child was to just set aside some amount of money in a savings bank account. These funds would then be utilized for the childs life stages. A few parents would also make investments in fixed deposits with the intention of utilizing the maturity amount. However, it would be safe to say that such an approach is not only outdated, but also inadequate in the present scenario.

Life insurance plays an important role in an individuals financial planning exercise. Insurance can assist individuals in planning for their own life stages as well as provide for their childs future. It also secures the childs future in case of any unfortunate event. Various types of child insurance products are available in the market today.

Child insurance plans have traditionally played an important role in securing the childs future. With a excess of children insurance plans available in the market, it becomes difficult for most parents to evaluate them objectively. Individuals need to understand the dynamics for planning their children so that they can best utilize the alternatives available in the market.

Parents must consider at the outset that they would have to build as sufficient corpus for their children especially if the child is to be sent abroad for education or a professional post graduation degree from the premier institutes in the country itself. As in above example, a 15 year planning time frame has raised the amount required considerably, parents must keep this in mind.

As a parent, one would generally plan from the perspective of making funds available for

  • Education
  • Marriage
  • Seed capital for business
  • The factors to consider while planning
  • Time frame for building a corpus
  • Age at which the fund would be required.
  • Approximate amounts to build the corpus.
  • Investment avenues to be considered.
  • The amount available to the child in case of death of parents or disability of the premium-paying parent.

Child plans come in two broad variants -Traditional child plans and unit linked insurance plans (ULIPs). The primary difference between the two lies in the way they invest their premium. Traditional plans invest a major portion of their money in debt instruments like corporate bonds and government securities (as specified by the regulator). Conversely, ULIPs can invest across equity and debt markets in varying proportions.

Parents have plenty of choice; they can either opt for a regular Traditional endowment plan which carries relatively lower risk since it is invested mainly in corporate bonds and government securities. The bonuses are stable and give the parent considerable comfort knowing roughly how much he can expect. Regular endowment plans are suited for parents with a low risk appetite.

Parents with some risk appetite can opt for a ULIP child plan that invests across equity and debt markets. The reason why ULIP child plans can prove to be significant is because over the long-term (15-20 years), equities can add considerably to the corpus you plan to build for your childs needs. Equities are best placed to beat inflation over the long term. However, to achieve this, one must invest wisely. Debt on the other hand brings stability to a portfolio. While the returns for debt at times may seem unattractive as compared to equities, their importance in a portfolio (ULIP) cannot be understated.

Parents should consider taking on some risk (by investing in equities) to beat inflation, which is the main reason the cost of everything right from your childs education to his marriage is forever spiraling. Over a 15-20 year time frame, if wisely selected, a ULIP even with moderate equity allocations could add considerably to your childs corpus

Life insurance has much to offer to parents looking to accumulate wealth for their childs future. There are several plans offering enough flexibility to help parents with the same. In the end, it all boils down to making an informed choice and ensuring that your plan is working in line with your expectations.