PLANNING TO BUY CHILD INSURANCE? THINK TWICE

Child insurance plans combine insurance and investment but often offer low returns due to high costs, making a combination of a term insurance cover and mutual fund a better option for securing your child’s higher education needs

- Meghna Maiti

As a parent, one of the first things you would think about your children's future is planning for their education expenses.

According to the recently published HSBC Quality of Life Report 2024, while 53 per cent of Indian respondents have an education savings plan for their children, 40 per cent expect their child to take student loans, 51 per cent are hopeful they will get scholarships, and 27 per cent would consider selling assets to cover the education costs of their child.

While the report does not mention the kind of education savings plans parents invest in, children's insurance plans are quite popular in India.

These insurance plans are often sold as one-stop solutions to gullible parents, who do not realise that they may not give them optimum returns, which they should be looking at for their children's education. To be sure, education inflation is higher than normal inflation at 11-12 per cent, according to the Bank Bazaar Aspiration Index. So if a four-year engineering course costs ₹25 lakh now and your daughter is 5 years old, it could cost about ₹1.09 crore when she is 18.

These numbers may sound scary, but with proper planning, you can secure the future of your children. But first let's assess if children insurance plans can do the job.

Who It Do child Plans Offer?

There are two types of children insurance plans. One, unit-linked children insurance plans (Ulips). These Ulips invest part of the premium in market-linked instruments and offer returns based on market performance. Two, endowment children insurance policies, which are traditional plans that offer guaranteed returns and carry lower risk than Ulips.