Child insurance – Think twice before you take one.

An insight into Child Insurance Policy

All of us as individuals want to give our children, better than what we got during our childhood.  All missed opportunities of learning, playing singing etc, we want to see our children, learn, perform and be successful.  This is because all of us love our children the most.  Anything in the name of the child ,  yes we grab it lest we miss it.  Many people make use of the “child” psychology in us and design, develop and promote products. Child insurance is one such product, where the psychology is well played by the insurance companies.

When was the last time you did not buy, what your child wanted??   You can count them in your fingers.

What is the concept in a child insurance policy.

1. First myth is that it is child insurance policy. Whereas the life insured under this policy is the parent and not the child.  Children are normally not insured as they do not have any insurable income, meaning they don’t generate or earn income. Hence technically they cannot be insured

2. Child education –  The second reason why we take a child policy is that you save and create cash flows in the future. The cash flows varies depending upon the product. Some insurance companies give at the end 21 years, some give annual cash flows starting from 15 th year for 5 to 6 years.

But have you ever noticed that the amount you take a policy for will always be for less than what actually would be required.  A person will work out a cash planning for 24 lacs and pay 60 k per annum for 20 years.  What is 24 lacs after 20 years. It is nothing but 2.4 lacs of today.  This is not sufficient to get admission in  a decent college. Even arts and science colleges charge more than a lac per acadmic year.

3.  Benefits offered.  — Some companies say, that in the event of the death of the parent, the further premiums need not be paid, and pay the cash flow as agreed.  Some even offer one sum assured after the death and pay the cash flow later as a double benefit. That is you get payment twice.

Please note that all these things comes at a cost. There is no such thing as free lunch.

4. Is there a better way of planning for my childs future ?  Yes. Since it is the parent who is insured, he should  insurance himself at a higher value. If the parent is 25 years , he can get a decent policy for 1 crore with an apprximate premium of 15 k per annum. ie 1250 per month.  This will give a substantial amount to your family in unfortunate death of the breadwinner and the family can manage their financial loss.

In the above cited example for a sum insured of 24 lacs one plays 60k.  By increasing the cover as mentioned above, he still has 45 k per annum under his disposal.

5. Start a SIP –  With the money saved, you start a SIP for 4 k per month approximatelly. you can get 10 to 14 lacs at the end of 20 years if invested in a good diversified fund.

You have the best of everything, you get a substial amount in case of death or a reasonable amount  in case you survive. Also as your career advance, you can increase your SIP amount and chart out your plans.

To know more do contact me.

varadharajan

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