Child Insurance Plans: Myths vs Reality Explained

Becoming a parent gives you overwhelming happiness. Along with it, it also brings in huge responsibility. You dream of a beautiful future for your child, and to fulfil them, you need money. To get the money, you need financial planning. As a parent, you must know how much to invest for your child's future and where. One such option you can explore is child plans.

Child plans are of various types and help you to create a corpus for your child's future. They ensure the increasing cost of education does not hamper their dreams. These are long-term saving plans, and most of them come with a mix of investment and insurance options.

5 Popular Myths About Child Insurance Plans & Reality

Most people have a completely different understanding of the child plan. Below are the five popular myths about child plans and the reality corresponding to them:

1. It is a life cover for a child

Most parents think child plans are life cover for a child and consider it inauspicious to buy an insurance plan for a child. Child insurance plans do not provide cover for your child.

When you buy a child plan, your life is covered and not your child's. Life cover ensures, if you die, the benefits associated can take care of a child's dream. P4G comes with a life cover that is paid to your nominee in case of your death. The sum assured will depend on your annual premium and the plan option you choose. As per your need, you can decide the plan and premium you want to pay.

2. The money will be available only after the child turns 18

When we talk of the child plan, you may think it is only for education and may only be available when your child turns 18. Most child plans give you the flexibility to choose your policy tenure. Since child plans are not just about educational goals, you have an option to withdraw funds earlier also depending on the goals you have created for them.

For example, P4G plans give your Systematic Withdraw Option. Under this option, you can withdraw a pre-decided percentage of the fund at a chosen frequency. Depending on your child's current age, you can decide when you would need the funds for her life goals.

3. Policy expires if a parent dies

Many people think if a parent dies, the child plan expires, and no one receives any benefit. Contrary to popular belief, child plans are the opposite. The purpose of a child plan is to ensure the dreams you have seen for your child get fulfilled under all circumstances. Hence, a child plan comes with death benefits - the benefits remain even after your death.

For example, in the Canara HSBC Life Insurance Smart Junior child plan, the family receives a sum assured as a death benefit if the insured dies during the policy tenure. Also, all the future premiums (if any) need not be paid by the family members.

The Smart Junior child plan provides you with guaranteed annual payouts in the last four years of your policy tenure. Even if you die, the beneficiary will receive the guaranteed annual payouts as per the policy.

4. Child Plan is Expensive

The general belief is that child plans are expensive. They come with a high investment amount and a number of hidden charges. When you invest for a child's future, in most cases, you have time to grow capital. So even if you invest a small amount, you can create a corpus for your child's future. Keeping this in mind, most child plans let you invest a small amount as well.

For example, in Promise4Growth Plus Life Option, the minimum amount to buy the plan is Rs 2000 per month, or you can pay Rs 24,000 yearly. Even the other charges are minimal. The maximum fund management charge (FMC) for ULIP plans is 1.35%, much lower than other financial instruments. With all the features and options Invest4G provides you, the charges are very minimal.

5. Child plan is Equity Investment

People want to stay away from child plans because they think the child plans invest in equity funds and equity investment is risky. First, the equity investment is not risky if you invest for the long term and the fund is managed by professionals. Second, depending on your needs (time horizon and risk appetite), you can choose the financial instrument you want to invest in under child plans.

For example, with the Promise4Growth Plus plan, you have the option to invest in equity funds (multiple equity options), debt funds, liquid funds, or a combination of all. If you are not sure which investment option is best suited for you, the plan offers you Auto Portfolio Management.

Why is it important to save for a child's future goals?

Below are some reasons why you should save for a child's future goals:

• Your best investment will be for your child's education. With education, you help them master their own life.
• The increasing cost of education can turn out to be a bump in your child's way to success. You may not want them to take an educational loan and pay heavy interest on it.
• Also, you do not want the child’s future to be affected by your premature demise.

Thus, investing in your child’s future goals is an important decision and requires you to select your investment options carefully.

When you buy a child plan, you should not go by hearsay. You must make an informed decision. Child plans are very crucial, and you should study them carefully before buying a plan. A good investment decision today can help your child in a number of ways in the future.