Why you should avoid buying a child plan

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Why you should avoid buying a child plan
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• Saving for children's education is one of the
  most important goals for the parents. It is every
  parent's dream to ensure that their children get
  to pick the best possible educational institutes
  or career options without any financial
  constraints. Other goals such as buying a home or
  a car can be postponed or even compromised if we
  do not have the required funds. However, we
  cannot postpone our child's education.

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• Hence, we have to make sure that as parents we
  would be financially ready to meet our child's
  educational expenses in future. It is important
  to calculate the amount of fund needed for the
  future education, the number of years for which
  cash flow is needed, and how far away we are from
  achieving that goal today. Planning ahead and
  making investments towards child's education at
  an early stage are the critical success factors
  in realizing this goal.

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Option 1 Investing in child plans

• Child plans are insurance policies which are
  either traditional policies or unit linked
  insurance plans. Typically, in best child
  insurance plan one parent is specified as the
  policy holder and the child is specified as the
  nominee. If the policy holder survives the tenure
  of the policy, periodic payouts are made at
  predefined time intervals. However, in case of an
  unexpected death of the policy holder, the
  proceedings are transferred to the nominee.

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Option 2 Investing in a customized diversified
portfolio and a term insurance plan

• In diversified portfolios an individual can
  invest through monthly systematic investment plan
  (SIPs). With the help of a financial advisor, one
  can select right SIPs based on risk appetite and
  investment horizon. In order to have adequate
  insurance risk coverage, parents should include
  the expected future cost of child's education in
  their total insurance calculation. It is
  advisable to opt for term insurance policies
  which are cost efficient in comparison to
  traditional insurance policies or ULIPs. This
  option yields much better financial rewards when
  parents maintain financial discipline, stay
  invested and do not redeem money till the target
  date.

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