Role of a mother in long-term financial planning for her child’s future

Ms. Vibha Padalkar, ED & CFO,  HDFC Life

No longer are areas of responsibility built into water tight compartments. Mothers can confidently fulfill their child’s financial needs, and fathers can stay at home and cook a nice meal for their children. 

In fact, this changing trend has already started reflecting in our society. Indian parents have evolved and invest in the development of child together.

Mothers are taking centre-stage in planning for their child’s education and career by taking up equal responsibility with their husbands. Our research showed that financial planning for the child was top priority for mothers when it comes considering buying life insurance.

Our research also revealed that most parents are not aware of the right time to invest in a child plan. And they procrastinate as there are a lot of other pressing priorities when they are new parents. This is where the mother’s nurturing and influencing power comes into play - to ensure that the step is taken at the right time.

An early start is a kick start.

To reap the benefits of financial investments, it is always advisable to opt for a child insurance plan during the child’s formative years (3-9 years) so that parents have long investment horizon of 10-15 years for a bigger corpus when the child turns 16, 18 or 21, ready to take up under or post graduation courses.

 

Vibha Padalkar, CFO, HDFC Life

The earlier parents start planning and investing, the longer is the investment period and better the returns. In fact, child’s birthday is the perfect occasion to buy a child plan as parents with young children usually invests a lot of time and money planning, but may not be necessarily be thinking about the child’s secure future during this early period.

This occasion, which occurs year on year, is best for long term financial planning for child’s secure future. Our internal research also reiterated that for parents ‘birthdays’ are relevant to their lives and buying the product on their child’s ‘birthday’ will remind them to pay premium every year

Tips to choose a child insurance plan

For most parents, the dilemma is how to select the best financial instrument. There is a bewildering range of choices available today. You must choose a child insurance plan as it is designed to inculcate the sense of financial discipline among young parents to invest systematically over the long-term.

 If chosen well, a child plan is a solid long-term vehicle to manage the future of a child’s different milestones. These investments can also be made in funds that can earn returns that match the escalating costs of education.

Finally, these plans have options that protect the child’s future plans in the unfortunate event of death of the parents. I am offering you 4 tips to help choose a child insurance plan.

·      Choose a plan that encourages long-term behavior - Insurance companies offer plans with maturity benefits structured to coincide with the child attaining 18 yrs or ‘timed’ release of payouts at critical lifestage from 18 yrs onwards. These plans offer a long horizon to invest which helps you systematically build the corpus. So, quantify your goals with a certified financial planner and choose a plan that encourages such long-term behaviour.

·      Invest in plans that offer premium waiver benefit..

Most child plans offer premium waiver benefit either as an option or as an essential feature in the main plan. What premium waiver does is this – in case of the death of the parent, the insurer waives off future premiums to be paid while the insurer continues to fund the insurance policy till the maturity.

This makes sure that the maturity benefit that was set for a certain age remains intact as planned in addition to the death benefit paid.

·      Choose a plan that offers a mix of investment options and adequate risk cover ..

Make sure you invest in a child plan which offers a balanced mix of growth & debt funds and option of risk cover. Empirically, equities give the best returns in the long run. Make sure that insurance plan that you choose offers you the right mix of capital protection and growth.

Also, choose a plan that has the systematic transfer option to make sure your gains in the investment are protected. Lastly, take adequate risk cover (atleast twenty times the annual premium) to ensure that the death benefit is a substantial lumpsum that can help your family in case of your demise.

Read the product brochure and understand the costs of the product..

·      Insurers lay out the charges that the customer needs to pay for the policy clearly in the product brochure. Compare the products available in the market on their charges, the reputation of the insurer, claim settlement ratios (available on company websites), flexibility offered and their service quality perception.

I suggest you make it a high involvement purchase by researching the products in the market, probing the insurance agent on the features, charges and past performance and satisfying yourself with evidence on every aspect of the product. Do this and your child will think of you as smart mother twenty years from now! That should make it worth it. 

Share: