When protecting your child’s financial future, child insurance plans are a sensible option. However, there is a lot of disinformation and myths around them, which may be confusing for parents trying to make the right option. Many feel these plans function as a one-size-fits-all solution, providing investment and life insurance. But is this the case?
Uncovered here are the common fallacies regarding kid insurance policies and explain why it is critical to thoroughly understand them before committing. After all, your child’s future demands meticulous planning!
Let’s look at some of the most popular myths.
Myth: Child insurance plans are the only way to secure your child’s future
Fact: While child insurance plans provide a combination of savings and protection, they are not the only way. Most parents prefer to buy term insurance for full life cover and separately invest in mutual funds or an endowment policy for better returns.
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Myth: Child insurance plans offer high returns
Fact: Most child insurance plans are based on safety and low-risk investment options that contribute to moderate returns. If you are in search of higher returns, you may consider either equity-linked saving schemes (ELSS) or mutual funds.
Myth: You should start with child insurance as soon as your child is born
Fact: While it’s never too early to plan, starting with a term insurance policy for yourself might be a better first step. The best way to ensure your child’s financial future in the event of an unforeseen event is to ensure your life is covered.
Myth: Child plans are only for education expenses
Fact: While many child insurance plans focus on education savings, they are flexible enough to pay for other major achievements such as marriage or starting a business. Or you can use the maturity benefits according to your child’s future needs.
Myth: All child plans are the same
Fact: Endowment policy as well as unit-linked insurance plans (ULIPs). The premiums, risks and benefits are different depending on each. Before you purchase, it is important to know what type you want.
Myth: Child plans are pure insurance policies
Fact: Child insurance plans are not pure life insurance. Typically, they are a combination of insurance and investment. If your goal is to secure life coverage, it’s better to buy term life insurance, which provides higher coverage at a lower cost.
Myth: You can rely solely on child plans for future expenses
Fact: Child insurance plans should be part of a broader financial plan. Supplementing these plans with other investments like mutual funds or an endowment policy can ensure that you have a diversified portfolio to meet all future expenses.
Myth: A higher premium means better coverage
Fact: Better coverage doesn’t always mean premium amounts. Premiums in the insurance company depend on term, sum assured and policy type. Before you choose a plan, compare plans.
Myth: Child plans provide immediate liquidity
Fact: Long-term investments and child’s insurance are not available immediately, it is most of the time. The idea is that they will have the funds available at maturity — your child’s time for higher education or other major expenses.
Myth: Only working parents should opt for child plans
Fact: If only one parent works, it is equally important for both parents to make sure a child’s financial future is secured. Homemakers should also think about term plans or endowment policies as it might help the family if such an unfortunate event happens.
Myth: Child plans are expensive
Fact: Child insurance plans can be made according to the budget. Long-term commitment may make them appear expensive, but they save and protect so they are very cost effective.
Myth: You don’t need life insurance if you have a child plan
Fact: Life insurance is not a substitute for child insurance. The amount of life cover you need to protect your child’s future adequately is more than you think. Get term life insurance to make sure your family is financially okay no matter what.
Myth: Child plans are only for boys’ future security
Fact: Child insurance plans are for all children, regardless of gender. In India, where societal biases often prioritise boys, it’s essential to understand that every child, whether boy or girl, deserves equal financial planning for their future.
Myth: Child plans don’t cover parents’ death
Fact: Many child insurance policies include a premium waiver in the event of the parent’s death, ensuring that the policy continues, and the kid’s future is assured. This is one of the most significant features of these programs.
Myth: You can’t change the terms of a child insurance plan
Fact: Child insurance policies provide flexibility in terms of premium payment methods, policy duration, and even the possibility to move funds in ULIP-based child plans. This versatility enables you to change the strategy based on your financial condition.
Ending note
Child insurance policies might provide parents peace of mind, but they are not without complications. The numerous misconceptions surrounding these plans frequently cause parents to believe they are a one-stop shop for their child’s future financial requirements.
As previously noted, kid insurance policies should be seen as one component of a larger financial strategy. They provide advantages such as a combination of savings and protection, but they should be reinforced with additional instruments such as term life insurance and diversified assets, including an endowment policy.
By dispelling these illusions, parents may make educated decisions that ensure their children’s financial future is truly safe.
