How Good is Life Insurance for Your Children?
Last Updated : April 20, 2022, 11:32 a.m.
Many parents like you must be wondering what to do to ensure a smooth journey for their kids. Nothing comes easy, be it higher studies or the marriage of your kids. Inflation makes it even stiffer without strong investment plans in place. There are many such plans including life insurance that comes with an investment component. Except for term insurance, all other life insurance products come with investment benefits. Let’s find out how effective they are to your child’s cause.
Investment Benefits of Different Life Insurance Products
Life insurance products offering investment benefits include Unit-linked Insurance Plans, Endowment Plans, Money Back Plans, Child Investment Plans, etc. These plans are similar yet different in the way they operate. The common thing about these plans is the financial help to your dependents in case you die during the policy term.
All these investments come with a certain degree of risks; some high, some low. But which are high and low-risk investments should be clear in your head too! Let’s know all that below.
Child Investment Plans May be the Most Dedicated One for Your Kids
The market is flush with dedicated life insurance cum investment plans for your children. These plans give payouts for your child’s education and come with a premium waiver in case you die during the policy term. All you need to do is choose the plan with a high sum assured.
How Much Do Unit-linked Insurance Plans Offer?
Unit-linked Insurance Plans (ULIPs) are one of the popular investment plans offering market-linked returns to policyholders. Market-linked returns mean the investment risk will be higher for investors trusting ULIPs for wealth creation. So, if you can bear greater investment risks, ULIPs are for you!
However, there are fund managers who manage your ULIP investments. They invest your money in handpicked financial instruments depending on market movement and trends. That heightens the possibility of getting appreciable returns despite the risks involved, although not guaranteed.
As an investor, you will get a list of funds to choose from – equity, debt and hybrid. Equity funds invest in stocks, while debt types will do so in debt instruments such as bonds, debentures, etc. Whereas hybrid funds will invest in stocks and debt instruments.
But, does the plan allow withdrawals that you want for your children? Yes, it does, but after paying the premium spotlessly for the first five years of the policy.
Endowment Life Insurance Plans & How Good Are They for Your Children?
How would you feel when someone stays true to the promise made to you? That’s what endowment life insurance plans do by ensuring guaranteed returns for policyholders regardless of the market. Those with a low investment risk appetite would find investing in endowment plans favourable. Like ULIPs, endowment plans also invest in multiple instruments. However, returns remain very low and redundant in terms of inflation. So, you cannot concentrate heavily on endowment plans while planning for your children.
Do Money Back Life Insurance Plans Have Anything Special for Your Children?
Besides offering guaranteed returns, money back plans return you the premiums you pay to the insurance company. These are known as the survival benefits of life insurance policies. The benefit is subject to the policyholders’ survival during the policy term. One more striking feature of money back plans is the bonus payment. Most of these plans are participating in nature, so as and when the company declares a bonus or dividend, the same will get credited to the policyholder’s account.
So, Where Should You Invest the Maximum for Your Children?
Given the inflation around, maximum investments should go to equities that can raise your money exponentially over time. So, betting on top-performing ULIPs will still be the best investment approach for your children. A dedicated child investment plan, obviously, is the most custom plan for the purpose. You can invest in other life insurance products. The investment should not account for much of your portfolio.