There was a case study I was reading the other day about demographic shifts in India over some past decades. It brought forth a very interesting observation that in previous generations parents could raise a family consisting of 6-7 children quite comfortably in a mediocre job and still the children made good careers for themselves.
In today’s time, it is a challenge to raise even two children from a high paying MNC job. Overall Inflation and rise in the standard of living account for this.
Westernization of the Indian society has brought rapid urbanization that has resulted in increased materialism. Highly materialistic societies bring immense pressure on the people to compete and win a good life for themselves.
Education being the sure route for achieving such material success is witnessing increasing demand and the population explosion in the country is adding to this havoc. This ever increasing demand is resulting in the swelling of education costs mercilessly.
What to talk of higher education, the fees model of some premier primary schools resembles that of many B-schools in the country. Thus, if you are a parent or planning to be, sit with your financial advisor and explore various investment and savings schemes to attain financial soundness and ability to provide your children unhindered good education.
You need to start making some projections based on your child’s age, current education costs, and inflation rate. Upon reaching a ballpark figure you start making contributions to a fund. Yes, in order to have systematic savings you need to create a fund. Investing in a particular fund for child education would save you from breaking FDs or liquidating other investments intended for some other purpose.
This particular fund can be your child insurance plan Investing in a child insurance plan has many advantages over a regular fund created to finance child education. Unlike other investment schemes, life insurance plans provide Death Benefit i.e. the company pays for the maintenance of the child in case the investor dies during the Term of the plan. Not only this, the Policy is continued and future premiums are waived off by the company under such an event.
Thus, the benefits of investing in a child plan are many over a regular fund. In the case of child insurance plans, the child gets dual benefit if the policyholder dies during the currency of the policy. As explained above, first the company pays at the time of death of the policyholder and because of its Waiver of Premium (WOP) feature it continues to invest in the fund on the behalf of the policyholder. The money grows and at Maturity of the policy, it is payable to the child.
Many companies have plans that offer the feature of multiple payouts i.e. at specified time intervals the company pays a certain amount which can be used to fund various important events in the life of the child. And if the Insured survives the policy term, the company pays the sum Assured as agreed at the signing of the policy.
The child insurance plans can either be Endowment based or ULIP based. ULIP based plans are invested in the stock market and can be considered riskier but can provide much higher returns than Endowment based child plans. Endowment based child plans pay according to the profit earned by the insurer. The premium received under such plans is invested in debt instruments and thus a return of not more than 5% should be expected. Thus, the basis of your Risk capacity, choose your child insurance plan.
Typically, financial advisors recommend couples to foresee the entire lifecycle of the child right on learning about the pregnancy itself and start investing at the earliest. The early movers are handsomely rewarded for their time planning and are able to generate a bigger corpus at a lesser expense.
Systematic savings would save you from big financial burdens in the future and with a little prick on the pocket you can fortify your child’s future and can avoid sleepless nights hankering over increasing education costs.