If you are opting for long-term investment, it is better you go for equity linked investment schemes. Longer the period of investment, greater the chances of risk mitigation.
Nowadays, more and more parents are buying insurance policies for their children. This not only takes care of expenses that may be incurred on children's education, but also funding for their education abroad.
Life insurance as an investment for kids
This year, children's insurance has grown at 250% as compared to 100% last year. Bajaj Allianz sold two times more policies this year than last year. This year, LIC (Life Insurance Corporation) sold three lakh policies in the children's category. Looking at the market, LIC and Bajaj Allianz are planning to increase the number of children's policies in the portfolio.
While this trend certainly seems to reveal that a lot of people are going for child insurance policy, the questions really is how aware are they about investments for children?
Investment consultant Sandeep Shanbhag says, "Demand for life insurance policies has increased in the last couple of years. However, people think of insurance policies as a way of investment and PPF (Public Provident Fund), RBI (Reserve Bank of India) bonds, equity mutual funds are thought of as investment for adults. But it is not like that. There is no product labeled as `for adults only'. Similarly, children's investment products are not the only products that are meant for children. This kind of mentality should go."
ULIP vs. normal insurance
Quite often, we are confused as to what is better ULIPs, normal insurance or investment in mutual fund? Manpreet Singh, who is 34 years old, has two kids. He has taken three ULIPs. One was taken three years back for which he is paying Rs 12,000 every year while for the other two he is paying Rs 2,000 per month.
He wants to know what is the best investment option - ULIPS or normal life insurance?
According to Yashmohan Prasad, Zonal Manager, HDFC Standard Life Insurance, the difference between ULIPs (Unit Linked Investment Plans) and traditional products is the way your money is invested.
In a traditional product, the companies invest the investible portion of the premium as per IRDA (Insurance regulatory and Developmental Authority) guidelines. "However in ULIP, the company's fund manager invests in different asset classes and gives you three to four varieties of funds in one policy. ULIP should be preferred if the investor is inclined towards the market and feels that he should actively participate in fund management," he says.
He adds that you should plan out with your fund manager if you think you may require money at different stages. You should go for ULIP only if you are comfortable with the markets.
Equity is best for the long term
Shanbhag feels, if you are opting for long-term investment, it is better you go for equity linked investment schemes. Longer the period of investment, there are more chances of the risk mitigation. But if you put the entire amount in equity you may not be able to withdraw money at your convenience, especially when the market is low.
"If you invest Rs 10,000 per year in PPF (Public Provident Fund), you will get Rs 10,000 at the interest rate of 8% after 10 years. No insurance policy will give you this kind of returns. So you go for a right mix of equity and debt. I suggest that instead of taking an insurance cover for your child, open a PPF account in the child's name. Every year, deposit Rs 70,000 in the account and when he/she turns 20, he will get Rs 32 lakh (Rs 3.2 million)."
Child insurance plan - insurance of the breadwinner Rakesh, who is an employee in Delhi earns Rs 40,000 per month. He pays Rs 10,000 per year as pension plan premium and Rs 50,000 as insurance premium. He wants an investment idea for his three-year-old kid. Prasad recommends that an insurance plan means insurance of the breadwinner and it protects the money, which would be made available to the family during the person's earning years.
"Child insurance plan is insurance of the breadwinner. Parents can take the insurance cover taking into consideration the child's higher studies and things like setting up businesses etc. In a good insurance policy, you can choose fixed dates on which the money would be available."
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