So goes the adage which is so pragmatic and real even in today’s fast-paced, modern world. A new-born in any family brings in much love, warmth and joy. What is more, it also creates a sense of responsibility, brings about the seriousness and a better focus on life. After all, the child is looking up to you to learn to walk, talk and get on to the journey of life.
You can see the sparkle of hope and affection in the little one’s eyes and this is one of life’s rare events that can bring so much excitement at home. When the doctor charts out the vaccinations for the next ten years, the feeling of being a parent starts sinking in.
You start dreaming big for your child and visualise seeing them getting the best of education and career options. With these dreams also come attached the associated costs that alert you about the need to start planning.
New Financial Responsibilities as Parents
A parent’s role is to shower love and affection on the child besides providing for necessities for the overall well-being of the child. Whilst it is understandable that all parents are not wealthy to provide a lavish lifestyle, proper financial planning can ensure that your child leads a reasonably comfortable life.
A new-born baby will need a comfortable place where they can be cared for. Nutritious baby food, hygiene and round the clock support is what is essential at this stage. As the child grows, you will have to account for expenses on bicycles, toys, sports items and so on.
Needless to say, education and quality schooling will form a good chunk of the expenses (and probably your income) in the initial 10-15 years. During this phase, you would also mostly be building your career and your income would see a modest growth year on year.
Children are more aspirational than ever because of the advent of technology and the shrinking of geographical barriers. Dreaming of studying in a different city, state, country or even continent is no longer a distant dream. Applications can be made at the click of a button, interviews done online or even in several Indian cities.
With stiff competition for the best jobs, post-graduation is the minimum any aspirational student aims for. Studying for top undergraduate and postgraduate programs in technology or management may require a total budget in the range of Rs. 30 Lakhs-Rs. 50 Lakhs.
You will certainly not want to restrict your child from applying to a program or university of his/her choice. Planning early could help build a corpus by the time the child is old enough to set foot inside a university.
Increasing your Term Insurance Cover for your Child
Apart from constant attention, efforts, supervision and planning, what is also essential is building a financial cover to protect against risks. Hitherto, your term insurance plan such as iSelect Smart360 Term Plan from Canara HSBC Life Insurance would have offered a sum assured that could take care of your spouse’s expenses in your absence. But what now?
Now that you have a new member in the family. iSelect Smart360 Term Plan gives you the flexibility to increase the sum assured at different life stages and milestones in life. With this plan, you can increase the sum assured on marriage, the birth of a child and/or on purchase of a house. On the birth of a child, 25% of the sum assured can be increased thus giving an additional safety net and peace of mind.
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Why Use a Term Insurance for Child’s Financial Protection?
A child needs constant attention, supervision and guidance even as s/he grows up from being a toddler to an adolescent ready to take on the world. The child will also need solid financial support throughout this journey until s/he becomes financially independent. You have an excellent career track record and bright prospects ahead but what if fate has some other plans?
Your planning should also factor in this possibility and ensure your child’s plans are not affected under any circumstances. Term insurance is helpful to provide financial protection at affordable, economical premiums. Now your child’s future will be secure and unaffected even in your absence. Here are a few advantages:
1. Investment in Financial Assets:Term plans are economical and affordable. You spend less to get more. Most premiums can be paid monthly instead of a huge lump sum each year thus making it more convenient. After paying the premium, you will still have sufficient savings to invest in other asset classes such as ULIPs, PPF, SSY, NPS etc
2. Tax Advantage:The amount paid as a premium for insurance plans are eligible for deduction (from taxable income) under section 80C of the Indian Income Tax Act. The upper limit is Rs. 1.5 Lakhs. In case of demise, the nominee will receive death benefits that are exempted, from tax, under section 10(10)D.
3. Corpus Creation:Most term plans have a long tenure which means that you can utilize this option to leave behind an inheritance for your son/daughter even if they have grown up and are financially independent. Opting for a term plan of Rs. 5 Crore sum assured at the age of 30 may cost you only Rs. 4000 each month.
If you pass away at the age of 69, your family will inherit Rs. 5 Crore in the form of a death benefit. Instead of buying a term plan, had you invested the same amount in a recurring deposit at 4%-5% interest rates, you would accumulate approximately Rs. 1 Crore-Rs. 1.25 Crore.
4. Freedom to Invest for Child’s Future:A term plan is your investment for the child’s future. As soon as you have a new-born, if you buy/enhance a term plan, you are essentially securing the child’s future. Once you have purchased a term plan, you can now have peace of mind that a fixed sum assured is ready in case of your untimely demise. You can then focus on investing in high growth funds such as Canara HSBC Life Insurance Smart Future Plan.
There are a plethora of options to choose from when you plan to invest in your child’s future:
- For the girl child, the Sukanya Samriddhi Yojana (SSY) gives a modest interest of 7.6% p.a.
- The Public Provident Fund (PPF) yields about 7.1% p.a.
- Child plans such as Invest 4G and Smart Future can help you build a large corpus in the long run
You may invest in any of these if you are risk-averse and are happy with modest returns. If you are starting early and are aspiring to build wealth, derive the benefit of equity investments. All of these plans offer tax-exempt maturity values and tax deductions of up to Rs 1.5 lakh on annual investment.
A child plan has one unique feature over others as it also protects your child’s goal from your untimely demise. Child plans like Invest 4G and Future Smart will continue investing the due premiums after your death as you would have done. Finally, your child receives the maturity proceeds and meets his/her goals.
Planning for the child’s future is quintessential and starting early gives you both peace of mind and better returns on investment. Buying a term plan will give the much-needed financial support whereas investing in growth instruments can help build wealth in the long run.
Also Read - Best savings planDisclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.