Being a mother is a full time job in itself and mothers today are playing diverse roles of being a working professional, an entrepreneur, and sometimes even the sole bread earner in the family. As mothers across the world have started playing more pivotal roles in the family, India is not far behind. Socio-economic changes in India and the changing dynamics of parenting are witnessing the mother play a very critical role in contributing towards planning for her childâ€™s future needs. I see this as green shoots of the next big role a mother is gearing up to play to enhance her childâ€™s overall growth curve and to secure his / her future.
I encourage every mother to initiate the conversation of financial planning for her childâ€™s future and play an active role jointly with her husband. After all, financial planning for her child, at the right time is her responsibility as much as the fatherâ€™s. Saving comes naturally to women and they also have a disciplined approach towards it. Culturally, mothers have been tuned to do some kind of savings for their child even though it may not be too organized. Our study reveals that more than 90% of urban women follow financial discipline in adhering to their financial plan and management.
Â An early start is a kick-start
Though the role of a mother has evolved over the years, it has been observed that most parents, start planning for the childâ€™s future quite late. Itâ€™s only understandable because the early years are quite challenging for new parents and other priorities seem to take importance. Their focus on meeting the rearing priorities usually leads to overlooking the financial planning. To reap the benefits of financial investments, it is always advisable to opt for financial planning for childâ€™s future during the childâ€™s formative years (3-9 years) to ensure ready sufficient funds when the child is ready to embark on a career, typically around the age of 18-21 years. It always pays to start early. If you start early, it will give you a larger time horizon to build a bigger corpus at a lesser cost.
Investment products can be confusing
The dilemma for most parents is how to select the best instrument for financial planning for their child. There is a bewildering range of choices available today. The best way out it to actually sit down and get an in-depth overview of your personal and joint financial portfolio along with your spouse. One of the options is to choose a child insurance plan as it is designed to inculcate a sense of financial discipline among parents to invest systematically over long-term.Â If chosen well, a child plan is a solid long-term vehicle to manage the future of a childâ€™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 childâ€™s future plans in the unfortunate event of death of the parents.
Here are some tips to choose the right insurance plan for your child
- 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 â€˜timedâ€™ 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 â€“ Most child plans offer premium waiver benefit. What premium waiver does is this â€“ 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.
- Choose a plan that offers a mix of investment options and adequate risk cover â€“ Make sure you invest in a child plan which offers a balanced mix of growth and option of risk cover. Take adequate risk cover (atleast twenty times the annual premium) to ensure that the death benefit is a substantial lumpsum that can help your child 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, flexibility offered and their service quality perception.
Insurance is just one of the many ways of ensuring that your child grows up without the risk of being left out in todayâ€™s competitive age. Do this and your child will think of you as a smart mother twenty years from now!
The writer Vibha Padalkar is a proud mother of a young teenager and is the Executive Director & CFO of HDFC Life