Planning to buy a child plan? Here is the list of things to look at before opting for one

Various insurance companies offer child plans. While some of these plans are traditional plans that invest the investors’ premium only in debt funds, others are market-linked policies that allow policyholders to invest in both debt and equities.

Rakesh Goyal, Director, Probus Insurance Broker, says “Every parent wants to give the best of education to their child, but rising education cost and inflation make it quite a challenge. Having a child plan helps you to build a corpus to fulfill their dreams when they would need the most”. Before opting for a child plan, one should consider the range of events for the child such as their education, hobbies, sports, etc. and make provisions for them.

A child’s plan offers guaranteed payouts for financing the child’s education and hobbies so they can lead a comfortable life ahead. This way, the child’s needs are taken care of even if the parents are not around.

When compared to traditional investment avenues such as PPF or FD, child plans are known to offer greater returns. However, choosing a suitable child plan is not easy.

Here are some factors you should consider while buying a child plan;

Start early
Starting early with these kinds of investments secure the future of the child early on. This plan provides a long horizon to invest, helping the investor to periodically build wealth. Hence, experts suggest one should preferably choose a plan that encourages long term investment.

Choose the right plan
The goals and ambitions of every child are unique and vary, hence, opt for a plan that suits their needs and goals. This will help you have the proper financial planning in place to help your child fulfill his/her dreams.

High-risk appetite
Go for equity-linked plans if you have a risk appetite. Along with that try to consider a considerable time frame of at least 10 years and above. Long-term equities tend to give good returns, and this way your investment will grow. Experts suggest a child plan should have a balanced mix of both debt and growth fund along with risk cover. Hence, look for a plan offers both.

Low-risk appetite
If you don’t have a risk appetite go for endowment plans. Investors who do not like taking a risk on their investment should opt for an endowment plan. This will not only give them an adequate cover but also ensure protection against volatile market conditions.

Benefits of a child plan:

Safety net
In case of an unforeseen event, having a child plan ensures that the child is financially protected.

Goals remain unaffected
Similarly, in case of death or disability of policyholders, such child plans make periodic payments and provide for the child’s goals. These policies also come with an in-built waiver of premium, wherein if anything happens to the policyholder, the future premium for the policy is waived off.

Flexible policy
These policies offer multiple risk covers and payout options along with flexible policy and payment terms. You can choose to either pay the regular premium, under which you can pay the premium on a regular basis, (annually, semi-annually, or quarterly) or choose the single premium option, under which you make the premium payment only once.

Tax 
Child plans offer tax benefits on death or maturity claim profits under section 10 (10D). Additionally, the premium paid is also eligible for tax deduction under section 80C of the Income Tax Act, 1961.

Source: Financial Express