Financial guru Dave Ramsey says, "The first step to teaching your kids how to handle money is being a good example." Parenting presents many challenges, and vaulting these hurdles brings a sense of satisfaction and pride that is unbeatable. We want to do right by our children to ensure that their dreams do not just remain dreams but become achievable goals.
When you look back at your life, what were the impediments that stopped you from achieving your goals? In all likelihood, the obstacle was a lack of money. By planning in advance and parking your money in the right financial instruments, you can ensure that what stopped you does not put a roadblock in your beloved child's life path. Achieving this goal becomes easy with a child savings plan.
How Does A Child Savings Plan Work?
A child savings plan such as a child endowment plan is a Life Insurance tool that offers you the dual advantages of life protection for the policyholder and savings for the future needs of the child. Both these needs can be met with the right child plan.
Depending on the child plan you choose, you can also reap other benefits. For instance, a unit-linked child plan allows you to enjoy higher market-linked returns and build wealth for your children. However, a unit-linked plan also presents a relatively higher degree of risk as it is linked to the ups and downs of the capital market.
On the other hand, a child endowment plan offers you the chance to hedge against rising inflation, save your money consistently, and enjoy life cover for the duration of the policy. In a children's endowment policy, you get to choose your life cover sum assured, which is the guaranteed amount paid out at the end of the policy term or as a death benefit in an unfortunate eventuality.
A child endowment plan could be participating or non-participating in nature. With a participating child endowment plan, you can also expect to receive some bonuses and value additions that enhance the corpus you save for your child's financial happiness.
How To Choose A Child Plan?
The plethora of child plan options available in the Indian market will leave you spoilt for choice and, perhaps, a little confused. Here are a few essential considerations that will help you choose a perfect child plan to meet your needs.
Plan early and do your math
When planning for your retirement and your children's future, you have to start planning as early as possible. One reason for this urgency is that both of these tend to be long-term goals. Not only do you have to save your money, but your investments also have to grow enough to beat inflation.
Systematically build your corpus with the help of a sound children's endowment policy. By the time your child turns 18, the child endowment plan will be best placed to provide pay-outs at significant moments of need in your child's life.
Waiver of Premium (WoP) option
It is essential to choose a child plan with a Waiver of Premium benefit, either built-in or added as a rider. The WoP benefit ensures that the child plan continues to function as designed even after the policyholder's death.
Suppose the child plan offers the Waiver of Premium benefit. Then, the parents (policyholder and spouse) meet an untimely death. With this option, the premium payments owed on the child plan in the future get waived off, and the predefined maturity benefit is paid to the child upon the end of the policy term.
Chart the route, not just the destination
While it is true that you are building a corpus for your child's future needs, it is essential to remember that many minor yet significant needs will come up along the way. With a child endowment plan, you can ensure that periodic pay-outs are available to you as you journey towards the end goal—the maturity benefit.
What Are Some Mistakes To Avoid While Getting A Child Endowment Plan?
When planning for your child's future, it is essential for you to do what is right and to avoid what is wrong. There are many myths surrounding the purchase of a child endowment plan. Meeting your child's financial needs is a practical and necessary choice. There should be no place for confusion, guesswork, or superstitions. Here are a few mistakes to avoid while getting endowment insurance for children:
Mistake #1: Thinking that a child endowment insurance policy is inauspicious
As it is titled 'life insurance for children,' many people assume that a child plan offers life cover for the little one, and so, it is an inauspicious purchase. This idea could not be further from the truth. Child life insurance plans cover the life of the parent/policyholder, who is the earning member of the family, not the child's life.
The goal behind this is to ensure that even in the case of the parent's untimely demise, the child's dreams need not be put on hold. Even when you are not around, a child endowment policy ensures that you continue to be the air beneath your child's wings.
Mistake #2: Thinking that a child endowment policy only covers education costs
Many child plans in India are marketed as child education plans, which has led to a general belief that a child plan is only useful to cover education costs. However, a children's endowment policy focuses on creating wealth that can battle inflation rates and rising costs of education, healthcare, and other living expenses.
There are no limitations placed on how you can use the money received as periodic pay-outs during the term of the policy or the maturity benefit given at the end of the child savings plan. You may want to invest in your child's higher education, and your child may choose not to pursue a professional degree. The child savings plan funds can then be used for whatever other goals your child might have.
Mistake #3: Worrying about a long lock-in period in a child endowment plan
A child plan is a flexible investment instrument that has a fixed tenure. Depending on the type of child plan you have chosen, the child policy tenure could be anything from 5-25 years. An endowment child policy offers periodic pay-outs in the form of a percentage of the sum assured. A children's endowment policy may also provide partial withdrawal and loan facilities. The longer you stay invested, the better it is from the point of view of wealth creation. But you do not need to worry about a lack of liquidity with a child endowment plan.
Mistake #4: Thinking that a child endowment plan ends if a parent dies during the policy tenure
A children's endowment plan is a unique financial instrument designed explicitly with children and parents' needs in mind. Most reputed child life insurance plans come with an in-built or optional Waiver of Premium option. This option ensures that the premium amounts payable in the future are waived off in the case of the parent's death and the child plan continues to remain in effect. Not only does the child receive a death benefit amount, but they also get the maturity benefits as determined while purchasing the child endowment plan.
Conclusion
Buying a child endowment plan is a significant step towards ensuring your little one's financial future. Researching and buying the right children's endowment policy is a purchase that requires high involvement on your part. IndiaFirst Life Little Champ Child Plan is savings-cum-insurance tool that offers periodic pay-outs, protection of your child's future in case of an untimely death or disability, unique liquidity benefits, and an inbuilt Waiver of Premium benefit. Learn more about the IndiaFirst Life Little Champ Plan so you can make an informed choice.
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