Every parent wants the best for their child. They want them to get the best of education and be financially secure and are willing to compromise or postpone their own dreams for the sake of their children. It therefore becomes necessary to choose the right financial plan for their future. Planning for their future needs to be started as early as possible. Assuming an inflation of 8%, it is safe to conclude that cost of education will rise significantly in the next 10 to 20 years. Many companies offer Child plan for these needs. So is Child plan the right option for your child’s need or should you consider other options?
What is Child plan?
Child plan is policy which is a mix of insurance and investment plan. The sum assured is paid in lump sum at the end of the policy term. In case of death of parent the child gets fixed payment annually. The premium on the plan is waived off in the event of the death of the parent. Child plan are of two types – ULIP and endowment plans.
Should you buy it?
Child plans have very high premium and the cover provided is comparatively low. The returns on investment also aren’t very attractive. The best option for you would be to buy a term insurance and use the money thus saved as a result of lower premium on a diversified portfolio.
Term plan provides insurance at a very low rate as compared to child plan and the sum assured is high compared to it. You will thus save a lot on the premium. This will provide adequate protection to child in case of loss of parent.
The money saved as a result of lower premium can be invested in mutual fund, public provident fund, fixed deposit, recurring deposit, etc. keeping in mind various long-term and short-term goals. This will provide good returns for various purposes such as education, higher education, marriage, business plans, etc. Debt mutual funds, fixed deposit and recurring deposit can be used as investment option for short-term goal, while equity mutual funds and public provident fund in the name of the child can be used for long-term goals. Parents with girl child below the age of 10 can invest in Sukanya Samriddhi Yojana.
When long term returns are compared, Child plans do not generally offer returns of more than 7%. On the other hand, PPF and SSY offer returns in the range of 8-9% and equity mutual funds can give average return of 10-12%. By investing in these options you will have a bigger corpus for your child’s needs as compared to Child plan.
Thus an ideal plan for the future of your child would be a term plan along with a good investment mix as it will provide adequate protection as well as good returns.