Child Insurance Plans, ideal for your Child?

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Best Child Insurance Plan
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Child Insurance Plans, ideal for your Child?
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When you pay the premium for this plan, part of
the premium amount goes towards paying for the
life cover. Remaining part of the premium is
invested in various instruments either debt or
equities. However this portion is quite small,
as the insurance companies tend to deduct premium
allocation charges upfront. These charges are
meant to pay the distributor commissions. As a
result, very small part of the premium gets
invested during the initial years. You have
welcomed your new bundle of joy in this world
with a lot of enthusiasm. You intend to give them
the best of everything. In order to help you
achieve this objective, you start investing in
various instruments on your childs behalf. To
capitalize on the parents intentions about
giving the best for their children, many
insurance companies have introduced Best Child
Insurance Plan . These plans have enticed many
parents to invest on behalf of their children,
under the impression that their childs future is
secure. But is it true? Are they worth investing?
Is this the best investment option for your
child? Lets take a look at what these plans are
all about.
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What are childrens plans? Childrens plans are
insurance-cum-investment plans offered by
insurance companies are similar to
ULIPs. However the difference between a ULIP and
a child plans is that the parent starts investing
in the childrens plan right from the time the
child is born and can withdraw the savings once
the child reaches adulthood. Of course, some
plans do allow intermediate withdrawals, at
certain intervals. How much insurance do I get?
These plans do come with inbuilt insurance
component in order ensure the sum payable to the
child is insured against the premature death of
the earning parent. The least life cover you have
to select in these plans is Sum Assured Term
Annual premium / 2. But in most instances this
sum assured is inadequately woeful. Experts
recommend that it is necessary  to buy a life
cover of minimum of 7-10 times the annual income
of the earning parents. This is to ensure that in
case if the earning parent meets untimely death,
his/her spouse and the child are adequately
provided for. So if you are relying only on the
life cover provided by these plans, then remember
you will always remain under insured.
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What about the investment? When you pay the
premium for this plan, part of the premium amount
goes towards paying for the life cover.
Remaining part of the premium is invested in
various instruments either debt or equities.
However this portion is quite small, as the
insurance companies tend to deduct premium
allocation charges upfront. These charges are
meant to pay the distributor commissions. As a
result, very small part of the premium gets
invested during the initial years. Also if you
opt for any features provided by the insurer like
waiver of premium, switching option etc., the
charges for the same are deducted from the amount
invested. So the returns from these plans tend to
be very low in the initial years and if you stop
the plan without completing the entire tenure,
you might end up suffering loss.
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Disadvantage of the childrens plans These plans
do rate poorly both in terms of life cover and
investment option. You can buy plain term
insurance at lower premium that provides you with
very high life cover. For investments, equity
mutual funds are the best. You can invest the
highest possible amount in these funds at very
low fees. Also if the fund tends to perform
poorly, you can stop your investment and switch
over to another fund, without paying any penalty.
This is not possible in case of childrens plans
as there are heavy surrender charges
applicable. Are they right for me? One needs to
evaluate if they are an ideal option. More often
no they are not. While they do provide you with
tax benefits, you can get the same tax benefits
with a combination of term insurance and mutual
funds. Also, term insurance mutual fund
combination beats the childrens plans on the
fronts of costs and returns. So it is better to
give these plans a miss and instead go for term
plan and mutual fund.
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surance-plans/child-insurance-plans.jsp
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