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Traditional child plans aren't best choice

Returns from child plans are lower than savings plan because of the high protection component in the plan. <br>No wonder, Yohanan feels that ideally a child plan should be viewed as an investment plan and hence, it is not advisable to go for one with higher cover. <br>

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Traditional child plans aren't best choice

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  1. Child plans

  2. Traditional child plans aren't best choice

  3. Parents often worry if they are saving enough for their children’s future. Given the spiraling cost of education, among other things, there is always the fear of inadequate savings. But, should you buy a product, a traditional insurance child plan, that offers less than even fixed deposit rates to meet this expense? • Most financial planners will say no to such a product. And for a good reason. Real rates of returns (nominal rate of returns minus consumer price index) turned positive for both debt and equity in FY14 for the first time in five years. And, the cost of education is rising much faster than the CPI.

  4. Child insurance plans can be useful in other ways. “In case of a parent’s untimely death, all savings will go to his heirs immediately. If at that time his child is say, 10 years old, then funds for the child’s higher education will be required only after another eight years. • In this intervening period, his spouse may be expected to manage the funds wisely till the child comes of age, but there is no guarantee. • There are other interesting options such as, staggered payment as well. Fifty per cent is paid out as an immediate lump sum along with an annual income of 12.94 per cent of the remaining amount over a period of 10 years. • Other companies that offer the staggered option on child plans.

  5. In the Education Plan, if you pay a premium of Rs 1 lakh for 10 years, the corpus that will come to you after 20 years is Rs 18.6 lakh. This works out to a return of only four per cent, which is lower than what a bank fixed deposit offers. • Returns from child plans are lower than savings plan because of the high protection component in the plan. • No wonder, Yohanan feels that ideally a child plan should be viewed as an investment plan and hence, it is not advisable to go for one with higher cover. • Over a 15-20 year period, equity mutual funds and even debt instruments will beat these products substantially. • However, depending on the parent’s age, one can buy a plan, in addition to equities and debt, to counter any uncertainty. Source : http://www.business-standard.com/article/pf/traditional-child-plans-arent-best-choice-115061100943_1.html

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