Understand how to plan for kids future.

By
Hemant Beniwal
33


What goes into your mind when an Investment Advisor talks to you about Child’s higher education or savings for his/her marriage.

You might have been told about something that LIC offers like “Jeevan Anurag” or “Komal Jeevan”. The private insurers are new kids in the block and they have some fancy name as “HDFC Standard Young Star Plan” or “ICICI Smart Kids Plan”. At TFL, we find that these are just sales talk and they are nothing but stupid products available in the market.

At times we also find that parents or grandparents take policy in the name of their kids. Emotional sales takes place where investors take emotional decisions. Tell me if a parent takes insurance in the name of the kid, would he feels financially unsecured in case god forbidden anything goes wrong with the kid. The correct approach is, if anything goes wrong with bread earning parent, the kid is unsecured and not the other way round and hence the parent should be insured.

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So nutshell is, NEVER BUY INSURANCE in the name of your kid. Always take term insurance so that in case anything goes wrong to you, the kid will be financially secured.

What other steps you need to take:

1. Do your home work to find out the expected amount of money required on your kid’s education and /or on marriage. Inflation should not be ignored while calculating future cost of education or marriage.

2. For young parents, you may consider a combination of SIP in diversified equity fund and PPF. Remember that equity is good when you are planning for long term goals. You may have more equity and less debt in your portfolio.

3. For parents whose kids are 10-15years of age, consider SIP and PPF. But you may have balance approach in your investment style.

4. For parents whose kids are now ready for higher education or about to get married in short time to come, investments meant for them should avoid equities and should be done in either debt based funds or Fixed Deposits.

Take for example, if you are young parent of a 3 year old child, your plan may be like:-

Current Total Cost of Higher Education: Rs.10 lacs

Current Cost of Marriage: Rs.20 lacs

Inflation factor: 6%

Age of Higher Education: 18 years

Age of marriage: 23 years

Current Investment for this purpose is not there.

Analysis shows us:

Total insurance requirement for bread-earning parent should be Rs. 30 lacs(Term Plan) as there is no investment as on date for this purpose. This may be taken on step down approach. Assuming that combination of PPF and Equity shall deliver 12% return p.a., we come on following figures.

Child Goals__________Higher Education__________Marriage

Expected Cost________Rs. 23,96,558/-___________Rs. 64,14,271/-.

Savings per month____Rs.4,797/-________________Rs.6,484/-

“This is just for illustration purpose and things may change depending on other conditions and factors.”

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33 COMMENTS

  1. What does it mean by SIP in diversified equity fund and PPF.
    I am in the same situation with 2.8 yrs old kid and have nothing been invested yet.

  2. Dear Anuj,

    PPF is a Govt. of India scheme; you can invest in it through Post office or few selected banks (SBI).
    Return on investment: 8%
    Tax benefit under Sec 80C, no tax on the maturity and no tax on interest earned.
    These features make it best debt investment.

    SIP (Systematic investment Plan) is a way to invest in Mutual Funds:
    5 reasons for investing systematically
    https://www.retirewise.in/2009/07/5-reasons-for-investing-systematically.html
    Also read Key to Wealth Creation
    https://www.retirewise.in/2009/09/key-to-wealth-creation.html

    If you still have some query mark a mail to [email protected]

  3. I am 31 yrs. old with 4 yrs old Daughter & 2 Yrs. old son have some investment also please guide my investment is right or wrong

    LIC Policies : 57572 yearly.
    Accidental policy & medicliam policy is also running.
    Mutual fund : 1000 per Month (Investing start from 3 month ago)

    please guide where i do invest for huge amount around 10 crore when i m 50 years

  5. Hi Team.

    You are doing a great service to people like us who are dumb investment planner. I have got scores of LICs which I now understand are useless. I am now reading the surrender value clause for each of them. I will invest this amount in PPF/MF.
    My questions:
    1) Now I want to take term insurance covering 20 Lac for 30 years (I am 28). What else do I need to check other than the premium charges ? Can you suggest any policy ?
    2) Is there any difference between mediclaim & health insurance polcicy ? What are the not so abvious but important clauses in it. I want a floater policy for my wife & aging parents. Any suggestion ?

    Thanks

  6. Dear Sir,

    My Age is 45 years, I have 2.5 years old child. I do following investments:

    1) ICICI Prudential Life Stage Assure 60,000/- per annum (premium to be paid for 5 years)
    2) HDFC Standard Life Insurance Young Star Policy Rs. 15,000/- per annum (premium to be paid for 5 years)
    3) LIC Recurring Deposit of Rs. 510/- per month (for 11 years).

    My current salary (total family income is Rs. 32,500/- per month). Please guid me as to how much amount per month / year should I take out further for my son’s education in the years to come. I work in a college in Mumbai and will retire at the age of 60. My wife is a home maker.

    Thanks and Regards,

    Vijay K.

  7. Hi,

    My age is 31 and father of 1 month old child. I’m only person earning in family with parent. Monthly income is 45K.

    Related to investment, I don’t have much investment. Apart from 2 lic (1 for me and 1 for my spouse) & invested 25K in MF under ELSS.

    I wish to opt for some plan for my son’s education. Shall I pick child insurance or PPF + equity investment or all three together? Plz guide me.

  8. Hi!
    My Age is 31 and my wife’s age is 29.we both earn and draw 57000 and 23000 net salary monthly. Our current investment is mostly in Sip’s.
    My total Sip’s :24500
    Wife’s total Sip’s : 3000
    Home loan Emi in my name :14807 pm(will complete in 2014)
    Home loan Emi in my wife’s name: 9900(Just started)
    Total Life Insurance Premium paid for me and my wife :20000 annually
    Sum of lumpsum investments :300000
    FD:40000
    Dependents : parents

    Pls suggest whether its a proper Financial Planning or Some changes has to be done.
    Are we under insured??There is no Term Insurance for both of us.If term insurance is required then which policy is best ??
    Is the policy named Jeevan Saral(newly launched by LIC) is a good policy to invest ??

    Regards,

    prashant chaturvedi

    • Hi Raman

      Most of the investors think that they are investing because they need to earn high returns but there is no definition of higher returns. Investing just for earning higher return cannot be anyone’s goal. Money is not the end rather it is a means to an end. Having more money cannot make you happy, but fulfilling your dreams can make you happy. I am not trying to say that we should not be hunting for returns. But returns are by product of investing – returns will depend on your time horizon, your comfort with various investments & the current market scenario. I will not position to suggest you any option since you have not disclosed your age, income, occupation, goals or your risk profile.

  11. i am a boy of 25 yrs,my monthly income is 15000pm,what investment should i made to get a corpus of 1- 2lac for my sister marriage after 1 yrs,my expenses are only 6000-8000,help me i am thinking of flexi FD OR FMP OR EQUITY OR EQUITY MF—PLEASE HELP MEE

  12. Thanks Hemant, a real eye opener from you. In fact, it’s because of you and Manish Chauhan that i was able to convince my wife to not have a child plan for my 1 year old kid. Keep the good work up. Mind you, i had a tough time convincing her, since this is a very emotional subject. But even if there are a minuscule quantity of people benefiting from your posts, the purpose is served. I just wish that I had you guys around in 2o04 as well!!

  13. Thanks Hemant ji,

    I am planning to Jeevan Bharati -1 plan to my wife . this is first LIC plan for her . Can you please advise me at the earliest.

    Bharani.

  14. Hi Hemant

    could you pl guide me to choose right Term insurance (~40L) , Mutual Fund for investment ( Shor / Long Term). my age is 29, monthly in-hand -20K. i have a child of age 6 months.

    Thanks
    shrikant

    • Hi shrikant,
      Its good that you are thinking of term plan,people at your age normally don’t think term plan as a good option for them.Instead of that they prefer like to invest in (Investment+Insurance) scheme which they think as a good option which generates a return of 4-5%.
      I will suggest you to have a Term Plan say that you are retiring at age 50 then I will suggest you to have 20 year term plan from ICICI- I care or Kotak Preferred E- term Plan and that too online which will cost you less, but one thing you should keep in your mind that all the details mentioned by you in the form must be correct in case of Claim Settlement.
      Its good to hear that you would like to invest in Mutual Fund too but for this you should thing for long term prospect that will benefit a lot to you.

  15. i’m 37 y farmer. i have 2 daughter .9 year and 6 month old. i want invest for my to daughter . where to invest 10000 per year. plz adivce me .
    thank u

  16. Max New York Life has a life insurance policy for kids called College Plan.
    Here if the payee, that is the parent , is not there to pay the premium, the company pays the premium for the rest of the policy period and thus the kids college education is unaffected. I can send more details, if any one interested

  17. Hi,

    My age is 30, I have one month’s daughter, earning 10500/- Pm. Suggest me which policy would be fine to get the 30lac in the age of 50

  18. hi
    i am 24 years old guy my annual income is 1.5lac i am palning to invest insurence policy on my mothers name, she is 45 years old so please suggest me better one

  20. Hi Hemant,
    I am a regular reader of your articles, those are really interesting to read, I am looking for your advice for present investments for future goals.

    I hope you will help me with your reply.

    My Personal Information :-

    My age is 36 years ( I am only the earner )
    Wife is a home maker
    Son who’s age is 3 years now.

    My Current financial status :-

    Salary 40,000 PM ( take home , 6 Lac PM )
    Variable and fixed exp close to 16,500 PM.
    Savings would be 23,500 PM

    My current investments are :-

    LIC’s jeevan anand :- for 26,000 PY ( sum assured for 5 lac for 21 years, 3 installments paid )

    Current cash in hand is close to 200,000

    My Goals are :-

    1 ) Wanted to have a own home with not more than 25 lac loan amount ( rest of the amount I suppose my father will arrange )
    2) Creation of corpus of 30 to 35 lac for my sons higher education at his age of 23 i.e after 18 years from now.
    3) I am not clear and sure how much should I need after retirement. ( surplus after utilizing first and second goals 🙂 )

    Please advice, what should I do now to meet my goals, how much should I invest pm and in which instruments should I invest ?

    It would be great help for me and my family if you show us a some light 🙂

    I am hoping you will advice me. Thank YOU.

  21. I want to invest for my granddaughter age 3 months, out of retirement benefits. Advice me a suitable plan and amount. Thanks

  22. I am 31 yrs. old .I have 10 months baby boy.I am a government employee every year I invest
    PF: 48000
    PLI : 32000
    LIC: 4089
    PPF: 15000
    Is my planning is write? Now I wants rs 15 lakhs for my children at the age of 15. How much amount I should invest in SIP and PPF to achieve my goal?
    Kindly guide me.

    LIC Policies : 57572 yearly.
    Accidental policy & medicliam policy is also running.
    Mutual fund : 1000 per Month (Investing start from 3 month ago)

    please guide where i do invest for huge amount around 10 crore when i m 50 years

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