Outlook Money
These plans are designed to offer a combination of life insurance and investment. They provide life cover for the parent or the bread earner of the family. This ensures child’s future needs, such as education, or higher studies, or marriage, are secured in the event of the parent’s death.
In the event of an untimely death of the policyholder, plans generally offer premium waiver benefits. Under this benefit, post the event of death of the policyholder all the future premiums are waived, but the policy remains active with benefits intact.
While child insurance plans may have perceived benefits, one should not go for them. To begin with, investment and insurance should never be mixed. These plans do provide guaranteed returns which may sound good, but for the very same reason they offer subpar returns.
Keeping costs and returns in mind, life insurance is best only from a term insurance perspective. This helps to secure the child’s financial future in case of an unfortunate event like the death of a parent.
If one buys term insurance and invests the rest in equity mutual funds, not only will one have higher life insurance cover, but the investments made for children will have the potential to grow much faster if invested equity.
Parents may consider investing in mutual funds in their child's name, represented by a legal guardian or parent, for investment purposes. Mutual funds provide market-linked returns, proper diversification, and liquidity.