Skip these mistakes when investing in a child’s investment plan!
With so many financial options accessible today, parents must consider more than simply saving or investing in a strategy to secure their child’s future. They must choose appropriate investment channels at a favorable moment to accomplish all of their financial objectives. However, before selecting a child policy, you should think about avoiding inevitable typical blunders.
What Is A Child Savings Plan?
A child policy is a life insurance company’s investment and insurance plan that provides financial security for your child’s objectives and goals. You may utilise a child policy to invest in your kid’s long-term objectives, such as further education and marriage.
While developing the corpus to achieve these ambitions for your kid, a child savings plan protects the corpus in the event of your unexpected death. In the terrible event that you die before completing the objective, the plan may invest the money on your behalf and provide the maturity amount you intended for your kid.
As a result, child savings plans are part of a broader category of child-specific financial solutions that also includes child education plans. Child insurance plans are a combination of insurance and investment solutions that safeguard your child’s financial stability in the future. After the child policy period, these plans pay out the life insurance in a lump payment.
How does a Child Insurance Plan Work?
Given that you are 30 years old when you begin investing in a child policy. Your kid is three years old, and you want to save Rs. 40 lakhs for her when she reaches 18.
Under normal conditions, the child savings plan will continue to invest your money following your fund selections. If your rate of return is 8% per year, you may collect around Rs. 58 lakhs at maturity, or Rs. 41 lakhs if your rate of return is 4% per year.
However, if you die before the end of the fifth policy year, your family would get a death benefit of Rs. 20 lakhs from the policy. They will not need to invest more in the plan after this payment.
However, as initially anticipated, the child policy will continue to receive investments as if you were still present until maturity. The family will earn Rs. 41 to 58 lakhs at maturity, depending on the ROI of the funds under the plan.
Mistakes to Avoid When Purchasing a Child Insurance Plan
Some of the most typical errors to avoid while buying a child savings plan are as follows:
1. Underestimating Risk Appetite
Policyholders must know the risk they are willing to take since more risk-taking capabilities lead to higher profits. However, not everyone can comprehend the market circumstances overnight and decide to invest a large sum all at once.
When investing in a child policy, it is critical to determine whether to take moderate risk and anticipate consistent returns or take no risk and expect lesser returns. It is advised to take on medium-level risk to achieve acceptable future rewards.
2. Not Insuring Your Own Life
Do not disregard the need to have insurance to protect your own life. Although a child’s financial demands are one of the essential considerations for a family, they should not be seen as the only economic necessity—your life insurance functions as a safety net for your whole family.
In the case of your untimely death, the death benefit obtained by your nominee would provide financial assistance to your family. Furthermore, your kid would get financial help from a child policy even if you were not there.
3. Starting Late
This guideline, which applies to all kinds of child savings plans, indicates that the sooner you begin investing, the lower the premium you will have to pay and the greater the returns you will obtain. A child policy is no exception.
For example, suppose you get an insurance policy while your kid is still a baby by the time they reach the age of 18. In that case, you will have built a solid corpus for them to pursue further education at a prestigious institution. On the other hand, purchasing a child policy would result in inadequate finances.
4. Overlooking the Education Expenses
Whether you want to send your kid to a professional course in India or abroad, we can help. The entire cost of schooling would be greater than in the current situation.
Furthermore, according to current trends, the cost of abroad education would be ten times that of typical national education costs. You may also use an online child insurance calculator to see how much you will need to spend on a child policy to match their future school expenditures.
5. Choosing the Wrong Policy Term
It is critical to understand when the policyholder intends to use the cash. Choosing the wrong policy term might leave you cash-strapped or result in increased insurance premiums that burn a hole in your pocket.
It is preferable if the period of the insurance coverage matches the child’s future demands. If funds were required for further education beyond the age of 16, a policy tenure of less than or more than 16 years, for example, would not benefit your kid.
6. Life Insurance That Isn’t Enough
When it comes to defending your life, don’t be a slacker. A child’s financial requirements are one of the family’s economic necessities. However, it should not be your principal source of income. Life insurance can be considered a kind of security for your whole family.
Your death benefit will assist your family if you are killed in an unforeseeable accident. In addition, if you cannot care for your kid, the child insurance coverage will provide financial assistance to your child in times of need.
When Is The Right Time To Invest In A Child Plan?
Any investment needs time to mature. The longer you can keep your money invested, the better it will grow. As a result, the most significant moment to begin investing in your child’s education is when they are born.
The bulk of your child’s financial assistance will be required throughout her graduation and post-graduate courses. This implies you should have amassed a sizable corpus by the time your kid reaches the age of 18. So, if you begin before your kid is born, you will have the most time to develop your assets.
Wrapping It Up
Purchasing a child policy is critical for parents who want to prepare a better, brighter, and safer future for their child. Before buying a child savings plan, it is recommended that you do extensive research.
You should avoid making any of the blunders mentioned above while deciding on the sort of plan most suited for your child’s future.