How Does a Child Plan Work?
A child plan provides the double benefit and serves as an insurance product and an investment. The investment component of a child plan can help provide financial security to a child’s life. And the insurance component ensures that the child or the nominee receives a good amount of money in case of any unfortunate events. Usually, parents purchase these child plans while keeping the child as a nominee.
The child plan provides a lump sum payment on the plan’s maturity. You can use this to cover expenses of important life occasions like higher education, marriage or business. And even if you won’t need to use this money for any of the occasions, you can set it aside as savings. The child can use this money as an investment that keeps growing as your child grows and gather a substantial amount.
In this way, you can give assured financial stability to your child. And when the child’s future has guaranteed financial stability, the parents can be at ease. More than that, the child will also become independent from monetary woes and enjoy peace of mind.
Benefits of a Child Plan
A child plan is a scheme that secures your child’s future. In itself, that is one of the most significant benefits of a child plan. It ensures that your child continues to get a good education in the future and takes care of their needs even in your absence. A child plan also brings in a substantial amount from time to time which is helpful during crucial stages of their life. Here are some benefits of a Child Plan.
Instrument For Child’s Education
Even a tiny investment done consistently over a long period with discipline can yield effective benefits. Minimum premium payments over a long period can also help you gain significant returns. Some high-risk investment plans for children can provide returns for as high as equal amounts of the premium paid.
Support For Child’s Emergency Expenses
This is one of the best benefits of child plans. Like other investment child’s plans also have partial withdrawal even if the policy has not reached maturity. It helps in case of any financial or medical emergencies for your child in case of illness or accident. One can withdraw a lump sum amount to cover their unexpected expenses adequately. It acts as a substitute or addition to your existing health insurance.
Some investment plans for children like securities, shares or mutual funds don’t provide partial withdrawal. But you can take a loan against them by giving them as collateral to the bank. Even investment schemes like PPFs, EPFs, Post Office Savings Schemes provide such loans to the investors. They offer loans that you can take against your invested money once the account acquires sufficient balance or investment duration. The loan amount ranges between 80% to 90% of the scheme maturity value with an applicable interest rate depending on the loan provider.
Great Support for Child in Parent’s Absence
Most people choose life insurance policies as child plans. They either start the policy in their own or their children’s name. The benefit of such life insurance backed child plans is that it has all the life insurance benefits. Some great features that you can enjoy from these plans are waiver of premium, life cover, lumpsum/monthly payout on maturity, etc.
For example, a person invests in life insurance in their child’s name as a child investment plan. In case of the sad demise of the parent, the insurance company waives the remaining premium amounts. The child is not obligated to pay future premiums if they don’t have any other guardian who can arrange the remaining premium payments. So, they will get back the money invested in the plan until then, along with a few more benefits.
The most crucial feature that decides the best child plan is those that offer maximum benefits based on your investment. As people invest early in child plans for occasions in the distant future, the plans are usually long-term plans. And with increased investment duration, the maturity benefits also increase steadily. So, as compared to other plans, child plans get the best returns.
7 Excellent Tips to Compare Child Plans
Understanding the importance of child plans is not sufficient. You must also compare child plans first before purchasing them. If you compare child plans beforehand, you will know which plan has more benefits. It is because there are several modes of investment that you can use as a child plan. Some of the significant modes of investment are :
- Insurance Policies
- Fixed Deposits
- Recurring Deposits
- Shares and Equities
- Gold and Gold Sovereign Bonds
- Mutual Funds
- Post Office Schemes
With so many investment options to choose from, it is necessary to compare and determine which one stands out as a better child plan. You must compare various benefits and liabilities even within a category to ensure that your selection is the best in every situation. Here are seven tips to follow while purchasing a child plan that will help you to get the maximum benefits.
Early investment is the good method to gather enough funds for your future. You must always choose a plan which allows early investment. Most providers allow a child’s plans to begin when the child is around 5 or 10 years old. But some investments can begin as early as before the child’s birth. An early start will provide a substantial amount of corpus by the time they are ready for higher studies or any courses abroad, which come at a very high cost.
Consider the Rising Inflation
By the time your child is all grown up and ready for education or other significant steps in life, say around 10-15 years down the line, the costs of living will undoubtedly be much higher than today. So, choosing a plan with higher sum assured is the best way to equate the inflation amount a decade or two later.
Go Through the Terms and Conditions of Child Plan
Although reading the terms and conditions may seem time-consuming, you should never miss out on reading them before finalising a plan. Most people tend to skip through them because it seems tedious. But you never know the hidden clauses and conditions in the policy terms that cause troubles later.
Analyse Your Investment Choice
Choose a child plan that provides flexible choices within the investment. Some plans offer the choice to invest in debt-based or equity-based plans based on your risk handling abilities. If you are looking for higher gains from your investment, you may want to invest in the equity-based scheme. You also have specific options like Systematic Transfer Plan and Dynamic Fund Allocation, where the investment companies take care of the smooth flow of funds in various instruments. So, you do not have to worry about the risk of funds.
Choose Partial Withdrawal Benefit
Only a few plans have the feature of partial withdrawals. These withdrawals are helpful during medical emergencies or other immediate needs related to education. You must compare and choose a child plan useful as emergency funds to not disturb your savings required for day-to-day needs.
Online Operation and Support
Online mode of operation is the most convenient and cost-effective way to buy to manage investment plans. Make sure that the plan you select has online support.
Assess The Financial Liability
Primarily, assess the funds you require based on the future requirements you need to meet. It helps you decide the right cover to opt under the child plan to meet the set financial goals with adequate corpus.
The decision you make to compare child plans before investing is a stepping stone to secure your child’s future. Do not make a hasty decision. To make sure your child’s needs are taken care of, take time to consider all your options. As a parent, you will never want to risk your children’s future, particularly in matters of their education. So, use these tips to compare child plans effectively.