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Benefits of having Insurance Plan for Your Child
When all who came for little Pihu’s birthday party had come with some gift or the other – be it toys, dresses or other baby stuff, the one gift that was most precious was gifted to her by her father, Rajesh. Rajesh had bought a child plan on Pihu’s first birthday, an insurance plan which provided for a child’s major needs like education and career. Vimala, the mother was a little baffled by this decision of Rajesh, and it made for an interesting conversation after the guests had left.
• Vimala: Why have you bought a child insurance policy?
• Rajesh: Under this plan, I am insured and our daughter is the beneficiary. The idea here is to protect her future in case something happens to me. Also, it will also help us save for her higher education, marriage, etc. Do you know, Mr. Rajiv Gupta, my colleague, has just paid Rs 1.5 lakhs for his son’s admission to kindergarten? By the time Pihu will start going to school, the fees of kindergarten would have increased to above Rs 5 lakh. And, let’s assume, Pihu decides to follow her father’s footsteps and becomes an engineer, we would have to pay around Rs 39 lakhs on her engineering course after 20 years.
It is always good to start early to benefit from the power of compounding and accumulate more money. If I invest Rs 50,000 yearly for 20 years, I will get around Rs 32 lakhs at 10%. In our case, time is on our side, so I am investing more money into equity funds which I can easily switch between other funds, like debt or balanced, as per the market conditions. If the market dips, I will switch my money to debt funds, and when it grows, I will move to equity funds.
You should not confuse it with any other insurance policy, don’t look it at as a plan to pay off liabilities, but as a viable option to protect our baby’s dreams.
• Vimala: So, is it insurance or investment?
• Rajesh: It is both, my dear. This child insurance policy comes with a dual benefit of ‘life cover’ as well as ‘sum assured at maturity’. Like an investment, it will grow our money and we will get a lump sum at maturity for our child’s education. As this plan is valid for 20 years, I will also get loyalty benefits from the 6th policy year onwards, which will help me in reducing the overall charges. Then from every 5th policy year, starting from the end of the 10th policy year, I will get wealth boosters also. I have decided, whatever bonus I will get, I will invest that also in this plan as a top-up.
Similarly, like insurance, it will safeguard our child’s dreams. And, yes, I can submit the premium receipt of child insurance policy at my office and get tax benefits.
• Vimala: Who will pay the premium, if God forbid, we are not there?
• Rajesh: You don’t need to worry about that. I have made you an appointee and in case something happens to me, the life cover will be paid to you which you can either invest or use to meet any immediate liabilities like household expenses, Pihu’s education fees, etc. Also, the policy will continue to cover our child and you will not have to pay any premium. At the time of maturity of the plan, Pihu will also get maturity benefits.
• Vimala: This plan has a long tenure of 20 years, so what if we require money before maturity?
• Rajesh: See, I have chosen the long tenure to give financial comfort to the future goals of our daughter, like education and marriage, but we can also withdraw up to 20% of our fund value after the 5th policy year. It means, if we require money for her school admission or coaching, we can easily withdraw the money and that too for unlimited times at free of cost. It will not impact the life cover available under the policy. But, I have bought this plan for long- term goals, so we both have to ensure that even after withdrawal, our child’s education goals remain on track.
• Vimala: All this makes complete sense, but what is the urgency? It is our child’s first birthday and you are talking about sad things like death. Can’t we buy the plan later?
• Rajesh: Let’s face it, life is uncertain. I am not a pessimistic, but can you predict the future? Critical medical conditions, road accidents, railway accidents, lifestyle diseases….there are so many scary things and much more what ifs. I am just ensuring that Pihu never has to face any problem. And of course, we are looking at the worst case scenario only. Don’t worry, we will be there watching our little angel grow into a beautiful girl and this plan will also grow our money for all of us to utilize for the bright future of our daughter. I think, a safe future is the best gift for Pihu.
The discussion satisfied Vimala. She was happy that Rajesh had bought the most precious gift—a child insurance policy— which will secure the Pihu’s future even if they are not around.