Why a child life insurance plan is important?

Kshitij Jain

Children are a blessing and often, the main reason for a parent’s existence. Every parent wants to provide the best possible foundation to their child and works tirelessly to provide for child care, schooling, higher education and imparting the right values to ensure that the child eventually becomes a responsible and productive member of society.

Achieving the dreams that parents have for their child need appreciation of the expenses involved and a carefully thought out financial plan that is initiated as early as possible. Of the many expenses that parents need to plan for, education is the largest and most crucial. It is well known that the cost of education today is increasing at a rate that is faster than the inflation rate of 7.6% per annum for the past 10 years.

The question is how are parents handling these expenses?  How much are they saving for their children’s future? Are they investing in the right financial tool, keeping in mind the long-term goals of their children?  Very often, we see that parents delay financial planning to a later stage, and typically invest for short-term periods. There are also multiple instances where parents end up sacrificing other important investment goals such as planning for retirement, due to poor long-term planning. The key is to start early and have a disciplined approach to saving for the long term.

A child insurance plan is ideally suited to meet the long-term needs of a parent and has an edge over other financial tools, owing to the unique benefits it offers. It allows parents to start investing early; one can in fact, start immediately after being blessed with a child and the plan encourages long-term disciplined saving.

An unpalatable truth is that parents often fail to plan for the consequences of death of the provider. The greatest advantage that a child insurance plan offers is that it ensures a continuous cycle of fund creation in the event of an early/sudden death of the parent.

Besides offering a lump sum payment on the death of the policyholder, the insurance company continues investing money on behalf of the policyholder due to the “waiver of premium benefit” thereby securing the child’s future and fulfilling the parent’s dreams.

Child insurance plans are affordable and depending on individual risk appetites, parents can choose between a range of traditional and unit-linked insurance plans. A traditional child insurance plan typically provides guaranteed maturity returns and invests funds largely in risk-free government securities and safe instruments such as high rated corporate bonds. Unit-linked plans on the other hand allow for investment in both debt and equity markets. People with a low-risk appetite and who are not financially literate opt for traditional plans as they prefer the security of guarantees. However, financially literate customers with a long-term view and who are willing to accept the risk associated with equity markets opt for unit-linked plans as these usually offer better returns over the long term.

The author is Managing Director & CEO, Exide Life Insurance. The views expressed in this article are his own