Child Plan or Term Insurance: What's the Best Investment for Your Daughter's Future?
Introduction:
As a 34-year-old working parent with a 3-year-old daughter, you may consider investing in a child plan offered by an insurance company to secure her future. However, is it a wise investment decision? In this article, we will explore the pitfalls of child plans and suggest alternative investment options to help you achieve your financial goals.
Pitfalls of Child Plans as an Investment:
Avoid mixing insurance and investment needs by purchasing a single product. Child plans marketed as a one-stop solution for education and marriage expenses have high charges and low returns that cannot beat inflation. Therefore, investing in child plans for your daughter’s future needs is not recommended.
Adequate Term Life Insurance and Mutual Fund Investment:
Instead of buying a child plan, opt for adequate term life insurance to meet your daughter’s financial needs even in your absence. You can purchase this through an online term insurance plan. For investments, mutual funds offer better returns in the long run. Investing in equity mutual funds through monthly SIPs is an excellent choice for long-term investments, providing higher returns over 15-18 years.
Estimating Future Goal Value:
Use a financial calculator to estimate future investment value by entering the expected rate of return, investment duration, and inflation rate.
Investing in Nifty 50 or Sensex Funds:
If comfortable with equity, invest in Nifty 50 or Sensex funds through monthly SIPs. These well-diversified funds have a proven track record of generating good returns, but with higher risks.
Investing in Sukanya Samriddhi Scheme:
For a non-equity option, open an account under the Sukanya Samriddhi Scheme in your daughter’s name. This scheme offers higher interest rates than fixed deposits and provides tax benefits under Section 80C of the Income Tax Act.
Combining Term Plan and Sukanya Samriddhi Scheme:
A better alternative to a child plan is combining a term plan and monthly SIP/deposit in the Sukanya Samriddhi Scheme. This combination provides the benefit of life cover with good investment returns and is more flexible.
Conclusion
In conclusion, buying a child plan insurance for your daughter’s education and marriage goals is not a wise investment decision. Instead, you should buy adequate term life insurance and invest in mutual funds through monthly SIPs or open an account under Sukanya Samriddhi Scheme in the name of your daughter. These investment options offer better returns and flexibility than child plan insurance. Consult a Certified Financial Planner to build a proper financial plan for all your goals.
