Should you buy child-specific plans?

Will you liquidate an investment if you need the money? You might, if you are faced with a cash crunch, but if the investment has the words 'child', 'education' or 'marriage' in the name, chances are you will think twice and then avoid withdrawing the money.

"When you invest in an ordinary fund, there is a greater probability of the money being spent for other needs. However, when you invest in a child-specific product, it is more likely to be used for that purpose," says financial planner Vishal Dhawan.

That, perhaps, is the only advantage that child-specific mutual funds offer to investors. Otherwise, these funds are like any other fund in the category and carry the same risks.

When it comes to child  insurance plans, young parents are forever in the cross hairs of salesmen masquerading as investment advisers. The first thing they are offered is a traditional insurance policy aimed at "securing the long-term needs of the child". If you don't fall for the marketing gimmick, they will offer a Ulip which will "ensure that all goals are met even if the parent is not around".

The emotional appeal is so strong that the parent quickly signs on the dotted line. However, financial experts feel that insurance plans are not the best way to invest.

Another question that parents tend to ask is whether it is advisable to buy an investment in the child's name. Financial advisers warn against doing so. "Your child will receive a very big sum of money at a time when she may not necessarily be mature enough to decide how to spend it," says Dhawan.

On the other hand, if the product is in your name (with your spouse as the nominee), you retain control over how the money is to be spent.

[Source: http://articles.economictimes.indiatimes.com/2015-01-19/news/58231568_1_investment-advisers-financial-advisers-traditional-insurance-policy]

Are child insurance plans really worth it?

You have welcomed your new bundle of joy in this world with a lot of enthusiasm. You intend to give it the best of everything. In order to help you achieve this objective, you start investing in various instruments on your child’s behalf.

To capitalize on the parents’ intentions about giving the best for their children, many insurance companies have introduced children’s plans. These plans have enticed many parents to invest on behalf of their children, under the impression that their child’s future is secure. But is it true? Are they worth investing in? Is this the best investment option for your best child investment plan? Let’s take a look at what these plans are all about.

What are children’s plans?
Children’s plans are insurance-cum-investment plans offered by insurance companies, and are similar to ULIPs. However, the difference between a ULIP and a children’s plan is that the parent starts investing in the children’s plan right from the time the child is born and can withdraw the savings once the child reaches adulthood. Of course, some plans do allow intermediate withdrawals, at certain intervals.

How much insurance do I get?
These plans do come with an in built insurance component in order ensure the sum payable to the child is insured against the premature death of the earning parent. The minimum life cover you have to select in these plans is arrived at by this formula: Sum Assured = Term * Annual premium /2. But in most instances this sum assured is inadequately woeful. Experts recommend that it is necessary to buy a life cover of minimum of 7-10 times the annual income of the earning parents. This is to ensure that in case if the earning parent meets untimely death, his/her spouse and the child are adequately provided for. So if you are relying only on the life cover provided by these plans, then remember you will always remain under-insured.

What about the investment?
When you pay the premium for this plan, part of the premium amount goes towards paying for the life cover. The remaining part of the premium is invested in various instruments—either debt or equities. However, this portion is quite small, as the insurance companies tend to deduct premium allocation charges upfront. These charges are meant to pay the distributor commissions. As a result, a very small part of the premium gets invested during the initial years. Also, if you opt for any features provided by the insurer such as waiver of premium, switching option etc., the charges for the same are deducted from the amount invested. So the returns from these plans tend to be very low in the initial years and if you stop the plan without completing the entire tenure, you might end up suffering a loss.

Disadvantage of the children’s plans
These plans do rate poorly both in terms of life cover and investment option. You can buy plain term insurance at lower premium that provides you with very high life cover. For investments, equity mutual funds are the best. You can invest the highest possible amount in these funds at very low fees. Also, if the fund tends to perform poorly, you can stop your investment and switch over to another fund, without paying any penalty. This is not possible in case of child plans as there are heavy surrender charges applicable.

Are they right for me?
One needs to evaluate if they are an ideal option. More often no they are not. While they do provide you with tax benefits, you can get the same tax benefits with a combination of term insurance and mutual funds. Also, term insurance + mutual fund combination beats the children’s plans on the fronts of costs and returns. So it is better to give these plans a miss and instead go for term plan and mutual fund.

[Source: http://profit.ndtv.com/news/your-money/article-are-child-insurance-plans-really-worth-it-315502]

Child insurance for your child’s future growth

Investing and saving enough for a child’s better future is considered the most important financial goal of parents in India. With happiness and harmony comes a sense of responsibility along with your bundle of joy amongst the new parents.

While market is flooded with various investment instruments, a child insurance plan can help parents to save adequate money for a child’s future goals. These insurance products are designed in such a way that they fulfill the financial needs of your children when the time comes.

These child plans help parents save money regularly over a period of time. And after a pre-determined period, insurance companies in India paya lump-sum money as maturity benefit.

The real importance of this plan is realized when parents meet with an untimely death. Child insurance plans can be bought on the life of any of the parent and you can make the child as the beneficiary. Incase parents meet with an unfortunate event; child insurance plan will take care of a child’s needs.

The best part about child insurance is that it will continue till maturity after the parent’s demise and all the remaining future premiums will be waived off by the insurance company in India. This is one of the unique child insurance benefits and generally known as ‘waiver of premium’.  At maturity, a guaranteed lump-sum amount is paid.

Based on a policy type you select, the payment is done at two stages, once on the parent’s demise and secondly during the maturity of the policy, almost exact time for your child to kick-start their career. 

Besides, there are also some child plans which will offer payouts at regular intervals. The idea behind designed such plans is there are various child requirement at different stage of their life. So parents can buy child insurance plan not only to fulfill the dreams but also meet the requirements from time to time.

The most important part while buying this best child plan is choosing the term period based on your child needs, your income sources and calculating the amount. Online sites can be good for researching as they help you easily to compare the cost of insurance and also provide you variety of options to choose as per your requirements. However, people who are not well versed with the market developments, policies and its features they can always consult a financial advisor to decide the amount required for life cover.

If you cannot afford to devote your valuable time on research then you can entrust the job to a well-known insurance agents. It is one of the reliable ways to ensure that you get best insurance quotes in less time without having to go through the hassle and tedious task of calculations. Good agents not only help you to choose the most profitable policy but also assist in filing the claim and getting reimbursement in case of any trouble.

Nowadays with the ever increasing inflation costs, young parents are more worried about child’s education costs; therefore design your child plan in such a way that your child’s education needs are taken care off. A sound education is a start for worry-free life of your child.

[Source: https://childplan.wordpress.com/2015/09/11/child-insurance-for-your-childs-future-growth/]

Plan early for your children’s education expenses

With the cost of schooling soaring every year, parents should put in place concrete savings and investment plans well ahead

 “Education costs money, but then so does ignorance.”

These words have a greater meaning today. The high cost of child education may come as a big negative surprise for those who do not plan early. Be it annual school admission fees, monthly tuition fees or expenditure on transport and extra-curricular activities, the costs are soaring every year.

Mounting cost of education in recent years has eaten up a large chunk of household budgets. So it is in the interest of every parent to look ahead and plan carefully for the cost of education of their children.

Even if you have planned for your children’s higher studies by buying insurance plans and mutual fund schemes, planning for their primary and secondary education is equally important. The costs would rise further if you decide to send your children to private schools. The job only gets tougher for single earning parents.

Planning is only half the job done. To understand the gravity of the situation, let some numbers do the talking. The inflation in the cost of education is rising at 12 per cent compared with a 7-8 per cent spurt in the overall inflation (though overall inflation has dropped to around 5 per cent in the past few months).

A survey by a leading industry body showed 65 per cent of parents spend more than half of their take-home pay on their child education plans as well as on co-curricular activities, putting significant pressure on family budgets. The figure shows the growing share of education costs on a family budget.

According to the survey, parents’ annual spend on items and activities integral to school curriculum like fees, transport, books, uniform, stationery, building fund, educational trips, extra tuitions and extra-curricular activities of a single child has gone up from Rs 35,000 in 2005 to over Rs 94,000 in 2011.

The government provides income-tax relief on monthly tuition fees paid under Section 80C of the income-tax act, which has since been raised from Rs 1,00,000 to Rs 1,50,000, but Section 80C also covers several other investment instruments within the same limit. Considering the rising cost of education and higher tax breaks provided overseas, there is scope for additional tax break.

Abhinav Gulecha, founder of Sham Financial Planners, a Sebi-registered investment adviser, said: “There is scope for an additional tax break, but in the last budget the government provided additional tax breaks on medical expenditure and personal accident insurance, which are priority areas.”

“Income-tax benefit can also be claimed on the tuition fees paid in a play school by submitting receipts. Companies also allow employees to structure their salaries where Rs 100 per child per month can be claimed as income-tax benefit under Section 10 of the I-T act. Thus, one can claim additional I-T exemption of Rs 2,400 on two children,” Gulecha said.

Even without tax break, saving for education is the need of the hour. “It is critical to invest in high-growth financial instruments so that your portfolio’s rate of return is more than the rate inflation,” Gulecha added.

Can taking exposure to equities be a solution? Experts are divided on taking 100 per cent exposure to equities to build a corpus for your child education Plans

They feel it is important to plan early, possibly even before starting a family. After marriage, a couple should set aside a corpus for children’s education, which can be put into bank fixed deposits, if they are below the 10 per cent income-tax slab.

If they are in the 30 per cent tax bracket, they should invest in liquid mutual funds, where there is no exit load and the amount can be withdrawn whenever required.

For parents who haven’t planned an education corpus, there is still some time and a few options. There is a three-year period before a child goes to a play school. This time, financial planners say, can be utilised well to plan a corpus that can provide regular cash flow. However, bear in mind that this is the time for other expenses as well.

While people tend to put money together for major life goals like buying a car or a home, children’s education tends to take a back seat. One should keep a separate reserve for children’s education purposes.

“Many parents paying school fees wish they had started a savings plan when their children were born. The earlier a savings plan is started, the less is contribution needed for such a saving plan,” says a financial planner.

A longer timeframe for investment also allows investors to take on more risk and maximise returns. One should keep a monthly deposit plan, but needs to review it as costs are rising at a fast pace. Experts say one may need beef up this fund regularly after every 2-3 years after taking the rate of inflation into account.

Certain other factors should also be included to make a good child education plans. For instance, one should choose a school keeping the cash flow pattern in mind. Some schools offer the best of services and boast of their ‘brands’ but they prove heavy on the pocket too. Substantial donation and fees can burn a big hole in your pocket. Once a child is admitted to such a school, it is difficult to shift out to another school. The nature of school expenses has also undergone a sea change, compared with what it was 10 years ago. Today, expenses are bundled and they usually include coaching, art classes and extra-curricular activities.Majority of parents would spend on an average Rs 18 lakh-Rs 20 lakh in raising a child by the time they graduate from high school. While right planning can help one build a corpus to dip into, maintenance of regular cash outflow is critical. Otherwise, one would have to run helter-skelter to arrange funds in every academic season.Parents know well that they can postpone buying a home or a car but once the child has started going to school, there is no way to escape from the regular expenditure till they graduate.

[Source: https://childplan.wordpress.com/2015/09/08/plan-early-for-your-childrens-education-expenses-2/]

Child Plans Lay the Foundation Stones of a Bright and Promising Future

The concept of life indemnity involves a broad-based perspective. It doesnot begin and end with the sheer calculation of death benefits. It is a fact that securing the insurer’s family with monetary benefits is the guiding characteristic of life insurance. How will the beneficiaries manage their odds and ends after your demise? The fiscal coverage is there to provide them with the assistance they need. As emphasized time and again, sealing the belt of financial security is the core essence of life insurance. You are opting for a package not only for yourself but also for your family members. Above all, you are doing it for protecting the future of your children.

Responsibility is yours
Child plans are one of your leading commitments. Both you and your spouse are responsible for securing your children’s future. Number of children that you have is an important aspect of consideration. Without a focus on methodical planning, it is just not possible to give shape to the children’s dreams and aspirations. You have to take the cudgel so that they know what it takes to dream big. There are end numbers of factors to consider. You know that it will take quite some time before your child settles down into an independent life. Until, he manages to earn his bread, you should give him the push that he needs.

Constructing the future dreams

Best Child Plan are largely instrumental in giving shape to your dreams and expectations—those that relate to your child/children. Education is an important aspect of consideration. Here again, the present scheme of requirements is as important as the future possibilities. There are certain odds and issues to consider. In order that he successfully settles down into a promising career, you will need to chip in with your proactive role. Setting aside a part of your saving for purchasing an insurance plan is one of the choices to consider. With the help of the planned outlay, you can help your child walk that extra mile so that he gives shape to a perfect career graph.

Feeling convenient and relieved

As you all know that nothing on earth is accomplish able without money. Education in general and higher education in particular don't come free of cost. Rather, these involve quite a bit of expense. So, if you lay the blueprints of the child plans, you can get the breathing space that you need. The space and the standing time are also necessary for your child. After all, at the eleventh hour, you cannot keep running from the pillar to the post for making the fiscal arrangements. 

For education and marriage

Education and career are not the only areas of consideration. Marrying your children off so that they can lead a healthy and independent existence is another major concern. Here again, the child plans are there to chip in with their role of difference. If you take into account the Indian context, you will see that parents have a decisive role to play in their offspring’s marriage. The proposition also requires a fair share of expenses. But you can make things click by choosing a suitable insurance plans that specifically cater to the needs of your children. 

[Source: https://childplan.wordpress.com/2015/09/05/child-plans-lay-the-foundation-stones-of-a-bright-and-promising-future-2/]