Things to evaluate while cherry-picking a child insurance plan

The current pandemic, a sudden and unprecedented event has taken a huge toll on people – both on their health and finances. While the health of millions across the globe is affected, many have seen their businesses decline, others have been furloughed and are facing a financial crunch. It is difficult to predict when everything will return to normalcy. During such uncertain times, increased risk awareness and aversion is being witnessed amongst people. Individuals have now become more concerned about their lives, health, and savings. But one of the biggest worries for most of them is to provide financial security to their kid’s future and dreams.

A similar experience was faced by Delhi-based Rahul (33) and Rashi (30) as they were busy redeeming funds for their daughter Ritika’s pre-primary admission. The couple had begun saving Rs 10,000 a month since their daughter’s birth and managed to save approximately Rs 3.6 lakh in three years. They eventually realized that this amount is sufficient only for a pre-primary admission and their savings certainly need to grow manifold when their daughter plans for higher education. What if Ritika wants to go abroad for further studies? How would Rahul and Rashi save enough considering the current situation?

Every parent desire to provide the best when it comes to education. Thus, long term planning is a must for a child’s education and a bright future. One needs to devise a financial plan which offers goal-based solutions, protects hard-earned money by offering assured returns, and thereby tension-free days. Given the current socio-economic situation, it becomes all the more necessary to opt for a comprehensive plan to take care of a child’s growing education expenses while protecting their future. A child insurance plan befits the need, but how to choose an appropriate one?

Let’s understand a few things to look for while opting for a child plan.

Long-term goals and policy term

The focus should be laid on comprehensive planning for your child’s future that could include income to support education or fulfil any other aspiration of the child.

It is essential to look out for plans that have brief gaps between the year you end up paying the premiums i.e. the premium paying term and the year when you start receiving the benefits, which is the payout year. This will help your child to reap benefits from the expected returns to fulfil the desired goal.

The tenor of the plan/policy term

While choosing a child insurance plan, it is important to decide prudently when you want to start receiving the benefits and for how long you want to receive the benefits. It is vital to ensure that it matches the funding requirement for your child’s education or any other goal. For instance, if your child is 10 years old, he/she would need at least 5-8 years to decide what he/she would want to pursue further. For this, your child might need financial back-up to pursue his or her dreams or goals. Look at the current age of the child and the age he/she will graduate or opt for higher studies and accordingly decide the term to receive the benefits. Therefore, define the goal clearly and further decide on the policy term prudently.

Security of benefits

You cannot leave the destiny of your child to future uncertainties and therefore it is important to look for a plan where benefits are guaranteed. Such plans are not market-linked and thereby do not get influenced or impacted by the market volatilities or changing rate of interest. Such plans become a sensible choice especially in the current market environment.

(The writer is Chief Actuarial Officer, Aditya Birla Sun Life Insurance)