Tips for buying child insurance

Let's begin with an insurance quiz. You need a policy to secure your child's future.

OddNaari OddNaari Apr 09, 2012

Let's begin with an insurance quiz. You need a policy to secure your child's future.

Which plan will you buy? With insurance firms doing promotion, you are likely to go for a child plan. Similarly, for retirement, a pension plan is the obvious choice. You are probably right in making these choices.

However, did you know that your unit- linked insurance plan ( Ulip) is identical to these plans and can serve your child's needs just as well? " Generic investment plans cost slightly less due to simple features and fewer benefits.They can be fine- tuned by adding riders and managing fund allocation wisely," says P Nandagopal, MD and CEO, IndiaFirst Life Insurance.Broadly, an investment plan can be grouped into endowment, money- back and Ulip categories. It is the packaging that differs. " Most child plans have a catchy name to capitalise on parents' sentiments. However, there is not much difference between a regular Ulip and a ready- made child plan," says Ramalingam K, a certified financial planner and chief financial planner at Holistic Investment Planners.

While the basic construct of Ulips and special plans is the same, it isn't right to say that these plans don't offer any extra advantage.Suresh Sadagopan, principal planner, Ladder7 Financial Advisories says, " It is easy to understand a product that is directed towards meeting a need and thus makes the buying decision easier." In a generic policy, there is a chance that the corpus may be used for other purposes. Here, the advantage of a dedicated plan comes into play.

Added advantage
In a plan with a specific goal your priorities are defined. It is, therefore, easier for a fund manager to plan asset allocation. For instance, in a retirement plan, funds will be allocated to equities early in the policy term when risk endurance is higher. The fund will move towards debt as maturity nears to avoid lastminute losses. Similarly, in child plans most investments are in safe assets. " These policies identify elements such as tenure, insurance required and volatility tolerance and hence help those involved take a better decision on how the portfolio should be managed," says Abhay Tewari, chief actuary, Edelweiss Tokio Life Insurance.

In addition, goal- oriented plans come with features such as premium waiver to take care of premium payments, since you wouldn't want your child's education to be affected by any unfortunate event. Another benefit of child plans is that their maturity or withdrawal dates are aligned with life goals. For instance, a child plan provides a multi- stage payment facility.This ensures that you have enough money at different stages. Such benefits aren't built into a general plan. Therefore, it is important that you are aware enough to fill the gaps between a standard product and a specific goaloriented plan.

Tailored or ready- made
What should you buy? Do you want tailored clothing or ready- made apparel? If you have the know- how of details, you can get it tailored to get a dress you desire. But if you aren't, it is probably better to buy a dress from a boutique that puts it together for you. The same is true for insurance.If you are financially savvy, there is no better option than buying individual products and tweaking them to suit your needs.

Regular policies are more flexible. They are ideal for accumulating wealth through regular savings. On the other hand, a dedicated plan ensures disciplined investment with customised benefits for achieving an identified goal.

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