Financial planning for your children’s future

Sachin Saxena

THIS morning on my way to office, one of the roads had unusually high traffic. Traffic congestion first thing in the morning can be really irritating but this morning was different. My office time coincides with that of a government school on that road. I could see many parents taking their children to their school, walking all the way — something which I had missed in the past as I just zipped past them. The happiness and the bond of love which was visible in their smiles and got engaged me and traffic was no more an irritant. This also made me reflect on my own life and I felt that my most memorable moments have been with my son. I am sure that’s true for every parent and their lives remain centered around the happiness of their children.

If children’s happiness is so important, can the financial planning for them be left to chance? Certainly not! Life 2015 by Nielsen has revealed that children’s future continues to be one of the biggest motivator for buying life insurance. As per an extensive ethnographic consumer study, child insurance segment had an awareness level of 99%.

However, the ownership of just 16% with 12% intending to purchase a plan is not in line with the awareness.

What explains the rising interest in these insurance products within this segment and why life insurance when there are a number of financial instruments available in the market today? The most common explanation is the need to provide for children’s education and facilitate their subsequent smooth transition to the professional field. Life insurance is probably the only financial product available to address and facilitate multiple parent-child needs, let’s look at how.

Higher education, marriage and financial security of our children are some of the most important milestones that we all save for. However, with rising cost of living in today’s world, simple saving instruments would not be enough to meet the aspirations for one’s children.  Child plans facilitate planning for children’s needs and most importantly provide financial protection. In case of unfortunate event of death of the parent, the beneficiary is entitled to receive guaranteed sum assured immediately. In addition, these plans offer waiver of premium, which ensures that the policy continues to operate until maturity. All future premiums in such cases are paid by the company on behalf of the life insured until policy maturity thereby ensuring that the purpose for which the policy was originally purchased is accomplished.

Systematic investment

Regular systematic investment in such a product helps enhance savings over the long term and provides guaranteed commitment to the child’s educational goals, professional career and overall financial well-being. Some of these plans also offer the flexibility of timing the payout as per the child’s educational or any other needs.

Start early

How should a parent go about planning finances for his child? The best way to build up a healthy corpus over the long term is by starting investments early. Investing small portions of the savings at regular intervals goes a long way in building a healthy corpus. Parents also benefit from the compounding effect (the interest keeps getting added up to the principal), which increases over time. In short, the following points should be kept in mind while purchasing a child insurance plan:

Time frame for building a corpus

Age at which the fund would be required

Amount required to build desired corpus

The cost of education has grown at a fast pace and especially so the cost of higher education. In these times when highly specialized courses are available, the cost of higher education sometimes looks beyond the reach of common man. The solution lies in setting up a reasonable goal, take inflation into account while planning for the corpus and then start saving early. There are possibilities that you may still be marginally short in corpus when your child is ready for higher education, but that gap can easily be filled with education loans. However, one cannot totally depend on loans and in case of unexpected event of death of the provider. Life insurance helps in making the dreams of your child come true.

As parents, we all wish to provide the best to our children. A child insurance plan helps meet this objective and holds the key to securing a child’s future. It is time to think of our children’s happiness not just today, but to ensure it forever through judicious planning from today.

The writer is SVP & Head – Products & Channel Marketing, Max Life Insurance. The views expressed in this article are his own