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Myths About Child Insurance Plans You Need to Stop Believing In

The truth of the matter is that today, the cost of education has spiraled out of control. For instance, the fees to get into an IIM-A today has rocketed to nearly 22 lakhs – a 400 per cent hike as compared to what they used to charge in 2007. Besides premier B-Schools, there's also been a sharp spike in fees across all education institutions, be it a college or even a school (MBA Universe n.d.). It’s especially daunting considering that many parents are still servicing their existing housing and car debts.

Today, there are a bunch ofinvestment products offered by life insurance companies that are specifically tailored to educational needs that parents could consider investing in. Unfortunately, these plans are also mired in misconceptions which can cause confusion and cloud the judgment of a parent looking to invest in such plans. So below, we debunk these myths surrounding child plans so that you can go ahead and make an informed decision.

Myth 1:AChild Insurance plan only covers your child's life


This couldn’t be further away from the truth. In most cases, the lives of the parent’s lives are covered while the child is merely acting as a beneficiary in the event something untoward were to happen to the parent/s. In such cases, opting for a child insurance plans ensures that they have the necessary financial support thus assuring that you have one less thing to worry about in your absence.

Myth 2:An insurance planseeks to provide only coverage and nothing more


Besides providing insurance cover, a child insurance plan can also doubles up as an investment tool. By making a timely investment in a child plan early on in life, you get access to favorable returns that can help in meeting the increasing educational and other needs of your child.

Myth 3: Child plans lack liquidity.


A lot of individuals are under the misconception that once you make an investment in an insurance policy, it's stays blocked for the entirety of the term with no further option to make a withdrawal in case you’re faced with an emergency situation. However, the reality is that child plans are flexible and you need not always wait until the end of the plan to avail the payout. Although, child plans do have a lock-in period, normally around 5 years for ULIPs and 3 years for traditional plans, certain policies like ULIP based insurance plans allow you to make a partial withdrawal, up to a certain percentage of the fund value,after the completion of the said term.This proveshandyas you can make use of these partial withdrawals tofulfill any financial obligations you might be up against while continuing to enjoy the benefits of the policy. Additionally, traditional child insurance plans are designed to facilitate pay-outsat pre-determined intervals corresponding to certain major events in the child’s life. Further, if were to happen to you before the completion of the policy period, the insurance company will terminate the policy and pay the funds to your child.

Myth 4: You can utilize the funds only to fulfill any educational obligations


Wrong again. It’s entirely up to your discretion on how you want to make use of the funds at the end of the day. If your child choosesnot to pursue further studies or you would like to use the funds for fulfilling some other commitment, you can still do so irrespective of the goal it was originally intended for. Securing your child's future by making funds available at the due date after all is the primary aim of the plan.

Myth 5: The policy standsterminated in the event of parent's sudden demise.


Another common misconception that’s usually touted is that in the event something unfortunate were to happen to you, the policy gets discontinued. You need not worry about that as most child plans come bundled along with a premium waiver benefit which ensures that your child won't be burdened with the responsibility of paying any future premium in your absence. Thanks to this benefit, your policy will continue to stay active as the insurance company will take it upon themselves to pay all future premiums. Moreover, in case of your untimely demise, if there are any emergency requirements which need to be taken care of, yourinsurance company will release a lump sum amount to the beneficiarywhich can be usedto mitigate the crisis.

The Bottom Line

Building a healthy savings fund towards your child’s education is advisable. In this regard, time and consistency are your greatest allies. It doesn’t really matter how much you start with; the key is to start saving as early as possible so that you can ensure your returns will be better in the long-term.Moreover, it makes sense to start saving early as you cannot discount the importance of compound interest. At the end of the day,having a good plan in place today is better than a perfect plan tomorrow.

Apr 25/18

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