Planning to buy a child plan !!! how about making a customized child plan on your own. Trust me it’s so simple & in the process you will save upon a huge amount of money because you need not to pay charges such as premium allocation charges, fund management charges etc to the insurance company.
Let’s have a look at what a child plan offers to you:
- Guaranteed amount when your child will be going to college & guaranteed amount on his/her marriage.
- Insurance cover: In case of your demise your family will get a lump sum amount and all the premiums of your child plan will be waived off & policy will continue till maturity.
- Some additional riders such as critical illness, accidental death etc.
Charges Involved – Off course all these riders & insurance is not free of cost. Let’s have a look at charges involved:
- Insurance cost (Depends on the insurance cover)
- Cost involved in Various riders
- Premium allocation charges: Charges deducted by the insurance company for allocating your money in various funds. These charges are in range of 2-5%. Say you invested Rs. 1 lakh to the company, amount deducted in the name of premium allocation charges will be about Rs.2,000-5,000.
- Fund Management Charges: 1.35% of fund value.
- Service tax, annual maintenance cost etc.
Note: The above charges are for ULIPS. If you go for traditional child plan or Money back plan, charges involved are too high 🙁
Ask the following questions to your policy agent & trust me you will never get an appropriate answer from them:
- What is the return from this plan.
- What are the charges involved.
Now let’s have a look at how you can make a child plan as per your need & requirement:
With the help of child education calculator, know how much you need to accumulate for your child higher education. You can also calculate how much you need to accumulate for his/her marriage.
Where To Invest:
Case 1: For guaranteed return (Low Risk – Low Return)
In the calculator Enter 8-8.5% in front of rate at which investment will be done. It’s recommended that you invest in Public Provident Fund. Currently rate of interest of PPF is 8.7% per annum.
You can also make partial withdrawal from your PPF account as and when money is required for your child higher education or for other essential needs in between. Have a look at how a PPF account works: Public Provident Fund
Case 2: For High Non Guaranteed return (High Risk – High Return)
In the calculator, enter 12-15% in front of rate at which investment will be done. It’s recommended that you invest in Equity based Mutual Funds per month in a systematic way. Invest in MF only if your time horizon is greater than 5 years.
Case 3: For Non Guaranteed return (Moderate Risk – High Return)
In the calculator, enter 10-12% in front of rate at which investment will be done. Here investment will be done both in PPF & MF. This strategy should be adopted by persons who will be requiring the money at least 5-7 years from initial investment.
Purchase an Online Term Insurance: Term insurance is the best form of Life insurance in India. Here you pay to the insurance company a fixed amount each year & in case of your demise, your dependents will get the amount for which you are insured.
Now the big question is how much should be the insurance amount !!! Take an insurance equivalent to twice the current education expenses. Say current education expense is 15 lakh, so you need to take a life cover for 30 lakh approx. This amount will take care of all the financial needs of your child in case of your demise.
Say your age is 30 years and you need an insurance of 30 lakh for 15 years (time till which your child will enter into college life), you need to pay Rs.3,000 (approx) per annum to get a cover of Rs.30 lakh.
Note : It’s a common misconception that insurance cover provided by the child plan is free of cost. All the insurance companies charge for insurance cover provided by deducting charges in the name of mortality charges. This deduction is made out of premium paid by you & is non refundable.
So what are you waiting for !!!! make a child plan as per your requirement & save around 4-7% per annum on premium paid by you. In case you have any query, feel free to drop a comment or mail me at firstname.lastname@example.org