Child Insurance/Child Plans – Is it Worth Investing
Speaking of Child plans the first thing that came to my mind was our Little Master Sachin’s campaign for a private insurer years back.I am sure most of us remember that advertisement.I have a friend who invested(at-least they thought so) just because it featured Sachin. Its not uncommon for the insurance companies to roll out new products/schemes and name them as Child Plans.But are they really worth it?
First things First – What exactly the insurers meant by “Child Plans” – So the invested money work differently for a child.Please take some time and understand that investing for a child is no different than investing for an Adult. So its a pure marketing ploy used by the insurer to exploit our weakness towards our Child’s future/growth.
Time-Value of a Money Any child plan or for that matter any insurance plan which doubles your investment by 15 years is a definite no-no.Why do you want to participate in such schemes when government backed public provident fund does the same thing of doubling your money. Have you though of Inflation?? If you add inflation to the equation doubling your money in 15 years is not a great-thing at all.
Insurance is not an Investment Most of the child plans provide free Insurance to the parent.Though the amount is very small,<5 lakhs most of us fell for the word “free” insurance.But do we have a “Free Lunch” at all?The sum assured for the parent via “free” insurance is good for nothing and this will be pea-nuts considering the long-run. Do the Math for yourself!
Tax-Benefits It is proven fact that we(at-least most of us) are most obsessed with saving tax than investing.The insurance companies gauge us very clearly and unleash a bunch of child Plans during the financial year end,this is the period of the year where most of us will be on a tax-saving-mode and this when coupled with the “child plan” – becomes a perfect trap for most of the parents.
Also please remember that these are not one-time expenses and this will be recurring for the next X years.Have we planned the annual premium for the next X years?
You need to think on investing in a child plan to save tax. Instead opt for the combo of Term Insurance + PPF + Equity/Mutual Funds.
Also if you are really worried about your Child’s future please
- open a pan-card,savings account on their name.Tell them what they are for and have them contribute regularly to the savings account from their pocket-money.
- educate them about the importance of money.
- instead of giving gifts on occasions deposit the money in their accounts and shop with them for the same gift outside.Make them pay and realize the difference.
- Monitor their spending habits but please don’t over-do it.
- Above all Learn with the Kids