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Child Plans Myths vs Reality

Parental concerns revolve around their children's future, and child insurance policies are frequently seen as a potential remedy. But with so much information at your disposal, it is simple to become bogged down in the urban legends around these schemes. A lot of parents think that child plans are just for school, that they are the same as conventional life insurance, or that they promise huge returns. ...Read More

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Child Plans Myths vs Reality

Child Plans Myths vs Reality You Need to Know

Child Plans Myths vs Reality You Need to Know
September 17, 2024

Table of Content

 

Myth 1: Child Plans Guarantee High Returns

Although child plans frequently offer returns, high returns are not guaranteed1. The underlying investing alternatives of a child plan determine its performance. It is critical to comprehend the risks and select a strategy that fits your risk tolerance. For example, the plan may fluctuate depending on the state of the market if it invests in equity-linked funds. As such, it is critical to set reasonable expectations and take into account variables other than the anticipated returns.

Myth 2: Child Plans Are the Only Way to Save for Your Child's Education

Although they are a useful tool, child plans should not be your only source of savings. To reduce risk and make sure you have enough money for your child's schooling, try to diversify your assets. Think about other choices such as mutual funds, recurring deposits, or fixed deposits. You may distribute your risk and possibly increase your profits over time by diversifying.

Myth 3: The Money Will Be Available Only After the Child Turns 18

When we discuss the child plans myths vs reality, you could assume that it is only for schooling and that your child can only access it when they become eighteen. You may determine the duration of your policy with most child policies. You have the opportunity to withdraw money sooner based on the goals you have set for your kid since child plans are about more than simply schooling.

Myth 4: Child Insurance Plans Lack Liquidity Benefits

A child insurance plan is intended to provide financial stability to both the parent and the child at different stages of the child's development. Thus, there are chances to get payments at predetermined times for the child's different objectives, including going overseas for college. After the lock-in period has passed, ULIP-based child plans allow for partial withdrawals, according to the policy's terms. Under certain terms and conditions, a child insurance plan in the form of a ULIP may therefore be considered to have modest liquidity.

Myth 5: Child Plans are Risk-Free

Investing carries some level of risk. Child insurance plans are vulnerable to changes in the market even if they could provide some protection. The plan's total success may be impacted by the underlying investment alternatives. It is critical to determine your level of risk tolerance and select a plan that fits your financial objectives. You may avoid possible losses and make wise judgements by being aware of the dangers.

Myth 6: Child Plans Don't Account for Inflation, Making Pay-Outs Insufficient For Tuition

Market-linked child plans let you invest your money to increase returns by selecting a fund of your choosing. A percentage of the fund value is added to your investment fund annually after a predetermined number of years, according to some plans' guaranteed1 Loyalty Additions. You may also adopt a more aggressive investing plan thanks to features like the Dynamic Fund Allocation, which provides you with more growth over the first few years of the policy.

Why should you save for your child's future?

Now that you have an idea about child plans myths vs reality, you must have an idea why saving for your child’s future is significant. Saving for your child's future is a wise financial decision that can provide them with the resources they need to achieve their goals and aspirations. Here are some key reasons to consider saving:

  • Education costs: Higher education in particular has become increasingly expensive over time. You may pay for these things without going into serious debt by starting to save early. Compound interest is one of the advantages of starting early and can significantly impact the total amount of money you acquire.
  • Financial independence: You may assist your child in being financially independent and capable of making wise decisions about their future by giving them a safety net. This can enable individuals to follow their aspirations, such as beginning a business, purchasing a house, or seeing the globe.
  • Emergency fund: In the event of unanticipated events, a child investment plan might serve as an emergency fund, offering financial help. This can assist your child in surviving financial hardships brought on by job loss, medical bills, or natural calamities.
  • Legacy: One approach to offer your child a better life and leave a lasting legacy is to save for their future. It may guarantee that they have the opportunities they need to achieve and is a concrete sign of your love and support.
  • Peace of mind: You might feel more at ease knowing that you have arranged your child's finances. It can help you focus on other areas of your life by lowering stress and worry.

In the end, investing in your child's future via savings is an investment in their happiness and well-being. Giving them the money they require will enable them to develop their potential and have happy lives.

Summary

A useful tool for safeguarding your child's future is a child plan. However, it is crucial to comprehend the truths and fallacies behind these initiatives. 

Many believe child plans and life insurance is complex, but once you understand the myths versus reality, you'll recognize how these policies provide invaluable protection for both you and your child. With life insurance embedded in a child plan, not only do you secure funds for your child's education and milestones, but you also ensure financial stability in case of an unforeseen event.

Once you have gone through the child plans myths vs reality in the sections above, you know how a child policy can benefit you and your kid. You may select a child plan that fits with your financial objectives and offers your child the greatest assistance by dispelling common myths and making well-informed selections.

Frequently Asked Questions (FAQs) on Child Plans Myths vs Reality

Q: Is it good to invest in a child plan?

Your unique situation and financial objectives will determine whether or not investing in a child plan is a wise choice. Think about things like your investing horizon, risk tolerance, and the particular benefits the plan offers.

Q: Which child policy is best in India?

The ideal child policy in India will vary based on your requirements and tastes. When selecting your choice, take into account variables including the underlying investment alternatives, tax benefits, flexibility, and returns. It is advised to evaluate various plans offered by various insurers to identify the one that best meets your needs.

Q: How flexible are child plans in terms of investment amounts?

Depending on the particular plan, child plans might vary in terms of their investment amount flexibility. While certain plans can have more stringent criteria, others might let you change the premium amount. It is critical to thoroughly examine the policy papers in order to comprehend the various possibilities for flexibility.

Q: What should I consider when choosing a child plan?

When choosing a child plan, consider the following factors:

  • Understand the investment options available and their associated risks and returns.
  • Assess the expected returns and compare them to other investment options.
  • Evaluate the flexibility of the plan in terms of premium adjustments, investment changes, and early surrender options.
  • Understand the tax implications of the plan and any potential tax benefits.
  • If the plan includes a life insurance component, consider the coverage amount and premium.

Q: What happens to a child's plan if the parent dies?

The plan normally remains in effect in the event of the death of the parent who acquired the child's plan. The plan may name the kid as a beneficiary, and it will pay the maturity benefit when the child reaches a certain age or certain events are met. The exact terms and conditions, however, could change based on the plan and the insurer. It is advised to thoroughly read the policy documentation in order to comprehend the clauses about death benefits.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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