Life insurance was a plan initially meant for life cover but gradually became popular as an investment plan. Though several of the returns and savings from life insurance, you could also get returns from it for your children. But like any other investment plan, life insurance plans also have advantages and disadvantages. And knowing these will help you make the correct decision on which plan to choose and with which features. Read on to know more about the pros and cons of life insurance for children in detail.
Life Insurance Plans for Children
Children’s life insurance plans are similar to regular life insurance but the major difference is the total benefits. Child plans always have considerable high returns, provide intermittent pay-outs and benefits. These attract parents to invest in these plans for the child’s future or even their own requirements. This is because several insurance plans already have returns higher than any other assured plan. But when they are for children, the returns increase due to the government support and the insurer discounts. Even though the overall image of child life insurance plans is good, there are still some issues.
Pros of Child Life Insurance
Assured Returns
Life insurance provides assured returns upon maturity and upon raising a claim. So, there is a guarantee on the returns. This means the child will not depend on someone else if the premium paying parent meets an untimely demise. And the child and other dependents can continue living their lives without any financial worries.
Low Premiums
Even though the coverages for child plans are high, the premium amount does not increase. But such low premium rates are only applicable to plans without a moneyback policy.
High Return Investment
The returns of child life insurance plans are among the highest of any plan with capital protection. This is mainly due to the long duration of investment and tax savings seen in child plans.
Education And Backup Funds
The funds from life insurance returns are also useful for the child’s education. Sometimes an education fund is a sole purpose of purchasing life insurance. And if the child won’t require it for the education, they can use it as a backup fund for the future.
Cons of Child Life Insurance
Expensive for Families with More Than One Children
Even if child insurance plan has low premiums, it can sum up to a large amount for families with more children. And arranging money for them all can cause disruptions in the family budget. This can even lead to cutting back on some lifestyle-related requirements.
Other Investment Plans Are Capable of Providing Higher Returns
Insurance is capable of only providing returns up to 110% or 115% of the total investment. But other investment plans can provide a much higher returns rate. And considering the long investment duration and interest compounding, the returns can further increase.
Lack of Instant Liquidity
The liquidity of investment can help during a financial emergency. But liquidity is a bit vague in insurance. The claim procedures take at least a month for cash disbursing. And loans with life insurance as collateral require more time for processing. Other conventional schemes, especially those from banking institutions, have instant liquidity.
The knowledge of these pros and cons must provide you with an insight into whether some plans for children are beneficial or not. But you can always prefer to choose only the profitable covers. And for that, you can take the assistance of a plan customization calculator. Some of the best life insurance calculators allow adding and removing covers. By doing so, you can make the perfect plan without paying for any unwanted cover of your preference.