Find out: The importance of child insurance plans

Yashish Dahiya

There are two stages in life when we always under plan. First is Retirement and the second being  saving's for our Children's future. Let me explain, I am 39, and my father is a retired army officer. I clearly remember watching 40K rupees for the 1st time when I was 8 years old, and it was a massive amount, which was being used to pay the initial deposit for our permanent home. This was 1980, and we lived in Meerut. My father's salary was about 3K a month, and even in 1990 when he retired he had a small loan on his house. I was lucky in that I went to IIT where the cost was minimal, however I went to do my MBA from Insead, and that set us back about Rs. 20 Lacs, a number my father could not have imagined ten years ago but eventually paid. Inflation is an amazing thing and last I checked the cost of a good international MBA has shot well past Rs. 50 Lacs. Just to put things in perspective, in 1990 my father's salary was about 6K and pension on retirement was about 3K, however that pension has grown to 35K, as he is a government employee and pensions keep rising with inflation, not everyone is as planned as the government! Have you ever looked at a property, and wished you bought it 5 years ago? The problem is we can all see the past, but not everyone can see the future, it's as expensive as today is for someone sitting 10 years back in time. I hope this clarifies the need for over-planning for your retirement as well as children. You will always be under planned.

Child plans are one such way of securing your child's financial future, and they are different from mutual funds or other insurance plans in many ways. Let's say you invest Rs. 1lac every year for your child when they are 3 years old, and you invest in a mutual fund for 20 years, given a market return of 15% which have been there over the last 15 years, you might end up with Rs. 1Cr 17Lacs. Now had you made the same investment in a very efficient market linked child plan, you may end up with say 1Cr+, but let's get into a little more detail. What if an unfortunate event happened when the child is 6 years old. There are insurance structures which would do quite a few things.

1. Pay you say Rs. 1Cr on the unfortunate event, which would be very useful in say paying of the home loan, or buying a house instead of renting.

2. Keep your policy in force without any further investment, thus still keeping the money available for the child, and your child still gets the Rs. 1Cr plus.

3. While you and your income are not there, the family has running costs, and your family gets the Rs. 1Lac every year in addition to the first 2 for the next 17 years.

In contrast the mutual fund would give you Rs. 3 Lacs on the date of the unfortunate event, and that is it. As regards to Fixed deposits, we never advice them for any investment with a time horizon longer than 5 years, as there are no 5 years in the last 30 years, when the market has ever returned under 13%, so the markets help you beat inflation in the long run, and daily / monthly / annual fluctuations even out over a period of time. Hence when planning for long term like retirement or child plans, stay with market linked plans only.

So, for your kids under 10, please start investing today, with a 10 year plus investment timeframe, and look towards child plans where you have a high life insurance, disability cover, waiver of premium, and family income clauses. Check out any comparison site for a quick comparison. Buy direct if you can, even if it's a bit of a struggle, understand the product that promises to secure your dreams in a bit of detail, and make absolutely true declarations.

Yashish Dahiya is the CEO of Policybazaar.com