Child life insurance is a form of permanent life insurance that insures the life of a minor. It is usually purchased to protect a family against the sudden and unexpected costs of a child’s funeral or burial and to secure inexpensive and guaranteed insurance for the lifetime of the child. It offers guaranteed growth of cash value, which some carriers allow to be withdrawn (collapsing the policy) when the child is in their early twenties. Child life insurance policies typically offer the owner the option to purchase, or in some cases obtain additional guaranteed insurance when the child reaches maturity.
Child life insurance policies typically:
- Are issued with face values between $5,000 and $50,000.
- Are always issued without a required medical examination.
- Have zero investment and zero interest rate risk associated with cash value growth.
- Provide insurance coverage for a designated beneficiary.
Child life insurance should not be confused with juvenile life insurance, which is issued with much larger face values (normally $100,000 – $10,000,000) and is generally purchased for college savings, lifetime savings, estate planning and guaranteed insurability.
Invest in Mutual Funds for your Child’s Future:
Parents try to save for their children’s future to ensure that they have sufficient funds – be it for higher studies, wedding expenses or ensuring financial security and providing a safety net. With rising inflation, traditional financial products offering assured returns such as bank deposits may not suffice to generate the corpus required to meet these goals.
How does one achieve the right balance while investing for your child?
- Plan well for your child’s goals and invest for each of them separately
- Invest via SIPs and start early to reach your goals in time
- Whenever possible increase your SIP amounts basis your income
- SIPs help you to ride over the volatility of equity markets and average your purchase cost over up and down market cycles
What are some best practices to keep in mind while investing for your child? A dynamic approach may help you get the best results:
- Switch to less volatile funds when you are near your goal.
- If you have invested for a 20 year goal in equity funds, you may start moving equal proportion of your accumulated corpus into debt funds every year when you are 5 years away from your goal.
- Do not stop your SIPs in volatile times as you would lose out on the power of compounding and rupee cost averaging
- Track your goals regularly and take corrective measures whenever needed.