Essential points for your child insurance plannings

Here are a few things which one may consider while planning for a child’s future: We are suggesting some essential points for your child insurance plannings.

Savings – Savings are crucial when it comes to financial planning, because without savings you cannot invest. Also, one needs to have sufficient funds for emergency purposes; this sum is generally 3 times your monthly salary. This emergency fund can be in form of cash in a savings bank account. Savings should start at a young age and should be imbibed in a person as a habit.

Insurance – No one can predict the future. As the future is uncertain, one should always hedge the risk by insuring oneself as well as their child. This is the part where you need to combine a child plan and a term plan (as a pure protection plan). A children’s plan is crucial, because with ever-increasing inflation, it is necessary to get a child plan which will help in systematic savings as well as financial growth. It is also necessary for the parent to get a term plan which will be helpful to the family in case either parent dies or is rendered unable to earn due to some unfortunate event.

Inflation should always be taken into consideration while planning for your child’s future. Inflation actually erodes your hard earned money. Let us take an example – an MBA today from a reputed management school would cost around Rs.5 lakh. Ten years down the line this amount could become Rs.10 lakh if we take a 7% hike in the fees every year. We have taken 7% as an assumption and a replica for inflation, because over the period of a decade, inflation tends to average at 7%.

Investing – While it is important to save, making your money grow is equally crucial. One needs to systematically invest money in various instruments like fixed deposits, mutual funds, and physical gold.  Investments should be made only after defining the risk appetite. A risk-taking investor may even invest in direct equity while a risk-averse investor may invest in FDs and RDs or even postal savings scheme.

Life insurance as an “investment” option

Life Insurance is an attractive option for investment. While most people recognize the tax saving potential of insurance, many are not aware of its advantages as an investment option as well. Insurance products yield more funds compared to regular investment options, and this is besides the added incentives offered by insurers. 

In life insurance, unlike non-life products, we get maturity benefits on survival at the end of the term. In other words, if we take a life insurance policy for 20 years and survive the term, the amount invested as premium in the policy will come back to us with added returns. In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured.

Now, let us compare insurance as an investment option. If we invest Rs 10,000 in PPF, our money grows to Rs 10,950 at 9.5 per cent interest over a year. But in this case, the access to our funds will be limited. We can withdraw 50 per cent of the initial deposit only after 4 years.

The same amount of Rs 10,000 can give us an insurance cover of up to approximately Rs 5-12 lakh (depending upon the plan, age and medical condition of the life insured, etc) and this amount can immediately become available to the nominee of the policyholder after death. Thus insurance is a unique investment avenue that delivers sound returns in addition to protection.

Best investment plan - planning for a child’s future

Here are a few things which one may consider while planning of best investment plan for a child’s future:

Savings – Savings are crucial when it comes to financial planning, because without savings you cannot invest. Also, one needs to have sufficient funds for emergency purposes; this sum is generally 3 times your monthly salary. This emergency fund can be in form of cash in a savings bank account. Savings should start at a young age and should be imbibed in a person as a habit.

Insurance – No one can predict the future. As the future is uncertain, one should always hedge the risk by insuring oneself as well as their child. This is the part where you need to combine a child plan and a term plan (as a pure protection plan). A children’s plan is crucial, because with ever-increasing inflation, it is necessary to get a child plan which will help in systematic savings as well as financial growth. It is also necessary for the parent to get a term plan which will be helpful to the family in case either parent dies or is rendered unable to earn due to some unfortunate event.

Inflation should always be taken into consideration while planning for your child’s future. Inflation actually erodes your hard earned money. Let us take an example – an MBA today from a reputed management school would cost around Rs.5 lakh. Ten years down the line this amount could become Rs.10 lakh if we take a 7% hike in the fees every year. We have taken 7% as an assumption and a replica for inflation, because over the period of a decade, inflation tends to average at 7%.

Investing – While it is important to save, making your money grow is equally crucial. One needs to systematically invest money in various instruments like fixed deposits, mutual funds, and physical gold.  Investments should be made only after defining the risk appetite. A risk-taking investor may even invest in direct equity while a risk-averse investor may invest in FDs and RDs or even postal savings scheme.
One can either hire a financial planner to make a proper plan for their child’s future or even do it on their own by consulting bank managers, insurance agents and mutual fund advisors.

Life insurance - Pay your premiums regularly II

How does paying your premium regularly help? 

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Delivers gains over the long term -


 For those who use insurance as a wealth building tool, some very beneficial laws of mathematics apply to your premium payments, especially if begun early and continued regularly.

Compounding: The law of compounding makes sure that even if you pay out small sums of money, you will gain substantially over the long term. Don’t question it; it’s a law of mathematics.

Systematic investing: Side by side, there is a property called ‘systematic investing’ which insures that even if your money is being put into investment avenues like stocks, where the value of the investments fluctuates, your capital grows at the best possible rate. This happens because by investing regularly, your money commands more investment units at lower prices and fewer at higher prices. The net effect is that your average purchase price is as low as possible. So, naturally, your appreciation over the long term is the best possible.

Long term investment option: While there are a number of investment options available to meet immediate and medium term requirements, insurance can effectively help you beat inflation over the long term.  Planning for the future is essential as what costs you Rs. 100 today will cost you Rs. 105 next year and as much as Rs. 200 within 15 years, even if inflation remains at a moderate rate of 5 percent per annum. Insurance is the only long term investment avenue that offers you the option to grow your wealth over the long term and beat inflation.

The secret to making the most of your investment policy is to pay your premiums regularly and leave your money untouched in your plan for at least 10 years, even if you have the option to withdraw it earlier.

Remember! The secret to successful financial planning is to start early, save regularly and think long term.