Child Plans: Don't be childish

Do you want to secure your child’s future? If your answer is yes, one thing you should do immediately is to buy a ‘Child Plan’. Well, if you are a sales agent trying to sell a child plan, this would be the perfect pitch for you. Emotions rule in India. And this is exactly where insurance companies monetize. They will first remind you that nothing is forever and then they will tell you how their product is the ‘Best’ for you. Let’s dig deeper into this very interesting topic and see whether you need a child plan or not!

What is a child plan?

The major difference between a child plan and any other insurance/investment product is the word ‘Child’. Trust me, if you remove this emotional word from the name of the plan, most policies would sound similar. I doubt if even the sales agents would recognize what is what without the policy name.

Child plan as Insurance

A child plan provides the much needed security for your child in case of an unforeseen event. But, I thought there is something called “Term Insurance” specifically designed for that. All you need to do is to just add you child’s future education requirement, marriage costs, etc to your total insurance requirement. Now, you would ask me; why not purchase insurance through a child plan? Good question. I wouldn’t mind doing it, but for the costs involved in doing so. There are mortality costs, administration costs, allocation costs and the list goes on. Why would I pay all these and get insurance only worth peanuts?

Child plan as Investment

The next emotional word that the sales agent would throw at you is ‘Investment’. He would tell you that this will act as a safe investment (only he would know what safe means) and secure your child’s future needs. And you would probably agree with him because you know well about rising inflation and education costs. Does a child plan invest in financial instruments offered out of this planet? I would invest in one right now, if it does. Rather, you could do well to pick 4-5 mutual funds with decent track record and invest in different financial instruments. With everything becoming online, you can do it on the click of a button, unless you are too lazy to do so.

Child plan for Financial Planning

The sales agent will definitely tell you that this would be a part of your overall ‘Financial plan’. The last thing that I would do is to include this ‘Na ghar ka na ghat ka’ policy in my financial plan.  In fact, if you have covered yourself with adequate insurance and planned proper investments, all you need to do is to teach your childrenfinancial literacy. This will enable them to protect and build the existing assets.

Final Word

Remember, there’s nothing in a name. You need to first know your goals before taking any financial decision. Do your own homework on a product you want to purchase. The agents will only talk about the positives of the specific policy. They will never know your financial situation in detail. If you do not have sufficient time for research on financial instruments you need, better approach a good financial planner. He will take into account your present financial situation and then help you plan ahead.

Source: InvestmentYogi.com is one of the leading personal finance portals in India