You should have a broad idea of how much money you would require for your child and when

The pandemic has made us realise the importance of financial planning. Many of those who did not set aside an amount for emergency, had to struggle to meet urgent medical expenditures and even the daily needs due to recurring lockdowns. So, to avoid the mistakes that we already made, it’s wise to secure the future of our children by setting aside some amount regularly or buying them a policy that ensures they have the resources to fight off an emergency situation that would require urgent expenses. Also, the idea of planning their investments should be developed in them.

To get the maximum benefit from any plan, parents need to start early and build sufficient funds for their kids by the time the child is on the career path.

Parents consider saving for children one of their most important financial goals. Child insurance plans make sure most of the future needs of your child are met, even in your absence. It is one of the best ways to fund your child’s future needs like higher education. Some of these plans provide the facility to partially withdraw the amount invested and you can avail tax benefits on the premium paid.

Types of plans:

1. Child ULIPs (Unit Linked Insurance Plans): The premium paid flows into a collective pool of funds invested both in debt and equity instruments. In most cases, the risk gets nullified if the plan is bought for a long term (more than 10 years). The returns could be high as it is a market-linked product.

2. Child Endowment Plans: The premium paid is invested only in debt products. The potential returns may not be as high as Child ULIPs. These plans are ideal for the short term (less than 10 years).

Picking the best plan

It’s difficult to suggest the right insurance plan as the needs and expectations of each insurer are different. But there are some broad guidelines that you can follow.

1. Know your goals and plan ahead: You should have a broad idea of how much money you would require for your child and when (for education, marriage, etc). When estimating the amount, take into account the expected inflation rate.

2. Invest in a plan that offers premium waiver benefits: On the death of a parent, insurance companies waive all future premiums and fund the policy. This ensures that the maturity benefits remain intact.

3. Understand the product and costs involved: Insurance companies may levy certain charges that have to be paid by the customer. So, compare the products and choose the most suitable one.

You can also invest in the government-backed Sukanya Samriddhi Scheme (Post Office), open a PPF account, or invest in gold. All these instruments help in accruing a decent sum of money over a long period of time.