Protection and Security For Your Child - What You Must Do?
Written on Friday, October 6, 2017
By Viswajeet Parashar - Senior V.P and Group Head - Marketing
Safety and security - that's exactly what parents want for their children, and they do many things to ensure that. As a parent, you too must be striving hard to keep your children protected in every possible way. However, when it comes to security, parents usually limit their thought to physical security only, especially in light of incidents like the one that happened recently in a renowned school of Delhi. But when the concern is about the safety and security of your child, then you must understand that you need to make your child secured in two ways - Physical as well as Financial.
Be at home, school, roads, play areas, or anywhere, your kid needs to be kept safe and secure. For this, you need to enhance your monitoring. With the advance of technology, monitoring has become easy.
Also, you must increase the awareness among your child. They need to become equally concerned and responsible for their own safety. From a young age, you must install the safety habits in them.
Regarding financial security of children, parents usually think they are anyway there to take care of that. Although it doesn't feel good to think on those lines, but what if something happens to your job or you. Won't it impact the financial security of your child?
If you think practically and strategically then you must take the financial security of your child as one of your financial goals and accordingly make arrangements to ensure the financial stability of your children at every crucial stage of their life, at least until the time they become to earn themselves.
Top 4 Things You Can Do to Ensure the Financial Security of Your Child
1. Secure your Family with a Term Insurance:
Why term insurance? It is the most affordable life insurance that can give you optimal coverage at low premiums. For example, a 30-year-old non-smoking male can get 30 years life cover of Rs. 1 Crore at an annual premium of around Rs. 9, 000.
Term insurance is not for returns purpose, it's purely for your insurance needs. You can top-up the insurance with riders like Terminal Illness Benefit And Waiver Of Premium On Disability.
The time horizon for your term insurance should be the number of years till when your child will be financially dependent on you. For example, if your child is 10 years today, then you can expect him/her to be financially independent by the age of 30. Thus, the time frame for your term insurance should be at least 20 years.
2. Get a Child Plan with Wavier of Premium Benefit (WOP):
A Child Plan with 'Waiver of Premium' (WOP) ensures that in the event of unfortunate dismiss of the policyholder (parent), the insurance company pays the sum assured immediately to the child/nominee of the family. But, the plan doesn’t end here. The insurance company keeps the plan active and continues to fund the policy by paying the remaining premiums. Thus the money keeps growing and is given to the nominee/ child on maturity. This ensures child/nominee gets the required funds at the right age specified in the plan agreement. Thus, there is an assurance that your plan to save for child needs will not get derailed under any circumstances. In most child plans, WOP is an inbuilt feature while in others it can be added as a rider at an additional cost.
3. Get a Health Insurance For Yourself and Family:
Health is wealth, and it's not a cliche. A medical emergency in the family can take a big dig in your savings done for your child's future. Getting yourself, your spouse and children covered under a health insurance give you the peace of mind that any moment of need the best of medical treatment will be available to you without bothering about the treatment cost and even the savings and investment done for future will not get hampered.
4. Start a SIP:
As you know the inflation rate is skyrocketing in the education sector. At present, even meeting the primary schooling expenses is a big financial task, you can imagine very well how much professional courses like Engineering, Medical, Business Administration, etc. Will cost after 5 to 10 years.
Are you Aware?
According to a report published in Economic Times, the course fee of two-year management course in Indian Institute of Management- Ahmedabad for the class of 2018 will be Rs. 19.5 Lakh. This is 400% higher than the course fee in the year 2007. This accounts to 20% raise on an annual basis. If the same pace continues, then in the year 2025, the fee of the same course will become 95 Lakhs. To quote the news article "At an average running inflation rate of 10%, a four-year engineering course that costs Rs 8 lakh today is likely to set you back by Rs 17 lakh in another eight years' time."
You must start investing for your child's future from his/her very 1st birthday. This gives you the benefit of the power of compounding.
Let's understand the power of compounding with the following example.
Mr. Jai and Mr. Veru have daughters of the same age. Mr. Jai started investing Rs. 4000 for his daughter's future, when she turned 1 year old. Mr. Veru started slightly late and started investing Rs. 7500 for his daughter when she turned 11 years.
Corpus amount when both the girls turned 23 years old :
Mr. Jai accumulates 29 Lacs more than Mr. Veru
Assumed Rate of Return is 12% and assumed inflation rate is 6%
Power of compounding is all about giving your money more time to grow. When you start investing early, even if you invest in small amounts, your money gets time to grow and thus yield you more benefits. But if you start investing late, then despite investing bigger amounts you will not be able to add much to your corpus only because your period of investment is short.
Taking care of your child's security need is a continuous process, be it physical security or financial security. As a parent, certainly, you don't want to keep any loose end. Continue putting your efforts and along with that also increase awareness among your kids. So that they can strengthen their safety in public places. Financial security is equally important, and this you need to act early and strategically.