Pros and Cons of Life Insurance for Children
Updated On Jul 29, 2021
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A child insurance plan provides an avenue of investment for your child’s future and also guarantees the promised corpus even if the parent dies prematurely. However, for most people, buying a separate policy for their child does not make as much financial sense as investing their money elsewhere
Benefits of Child Life Insurance Plan
Protecting the future of your child will be your priority as a parent. Here are a few advantages you need to check into before buying your child's child insurance:
- Protecting your child in the event of a tragic event is the most valuable advantage of buying a child insurance plan. And in the event of your absence, a good insurance policy that meets the financial needs of your children would take care of their welfare.
- Child insurance policies are structured in such a way that the child is financially covered at every significant point of his/her life. Many child insurance policies will have a maturity period related to the age of the child, such as when the child is 18, 21, or 24 years old.
- Not only does a child life insurance policy provide cover, but it also acts as your child's savings fund. The lump-sum amount earned on maturity will be used to achieve different goals specific to your child, such as education, marriage, etc.
- You should also look for additional benefits, such as guaranteed bonuses, surrender benefits, etc. With riders like income-saving, waiver of premium, personal accident benefit, or serious condition, you can enhance your child's basic insurance plan.
Drawbacks of Child Insurance Plan
Critics of child plans argue that these policies come at a very high cost compared to a simple term plan. Given below are some of the drawbacks of a child life insurance plan:
- Both in terms of life cover and investment options, these policies rate poorly. For a cheaper premium, you can buy a plain-term insurance that provides you with very high life coverage.
- For investments, the safest is equity mutual funds. At very low fees, you will invest the highest possible sum in these accounts. Often you can terminate your investment and move to another fund, without paying any tax, if the fund happens to perform poorly. In the case of children's plans, this is not possible when there are heavy surrender charges available.
- In comparison, the term-insurance-plus-mutual-fund combination defeats the policies of the children on the expense and return fronts. So, it is easier to miss out on these plans and opt
with a term plan and a mutual fund instead.
- Although they do give you tax benefits, with a mix of term insurance and mutual funds, you will get the same tax benefits.
Child life insurance plans guarantee that even in your absence, the future financial needs of your child are taken care of. Advocates assure you that children's life insurance plans are perfect financial tools as part of broader savings and investment portfolios. In comparison, opponents claim that children's insurance is a waste of money for most households since it only replaces lost income.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.