5 Common Mistakes To Avoid While Buying A Child Ulips

  Author: Naveen Kumar

Life insurance companies offer child unit linked insurance plans (Ulips) that can help save for the future expenses of children like higher education. Child Ulips use the premiums to provide not only life insurance coverage but also help you buy units in a fund of your choice. One of the major attractions of Ulips is that they help you invest in equities and benefit from the typically high growth during the long term of the Ulip. This higher amount of savings from high growth equity investments by Ulips can help you meet the large expenses like that of child’s higher education.

At the same time, it is not uncommon for investors to make some common mistakes while buying child Ulips. Here are five such mistakes that investors need to avoid.

Inadequate life insurance In trying to aim for high returns, people often ignore the protection of life insurance they need to provide to their children. Remember, the financial advisor or your financial planner needs to help you arrive at the life insurance coverage you need to protect your child’s future requirements, including higher education. You need to buy a child plan accordingly. You can also get an idea of your life insurance requirement by using life insurance calculators from established websites.

Incorrect policy term When you are buying a child plan like a child Ulip, you need to ensure that you have a good idea of when you will need the money. The tenure of the child plan needs to match with the time when you need the money. Therefore, if you will need money for your child’s higher studies 15 years from now, a child Ulip with a 20 year term is inappropriate.

Earmarking one child plan for two children If you have two children, you need to make separate provisions for each child’s future. This means you will need to buy a child Ulip each. This will also prevent you from overdrawing which can happen in the case you have a common savings pool for your children. Remember, you might overdraw for the elder child and fall short for the younger one.

Absence of premium waiver rider Premium waiver feature makes sure that the child plan, in this case the child Ulip continues even in your absence with your child getting the money at the time required. Don’t make the common mistake of ignoring the presence of this feature in your child Ulip. In fact, this needs to be one of the main reasons for buying a child Ulip since there are equally attractive investment alternatives for your child’s future.

Ignoring additional benefits like financial support In your absence, your child may need regular financial support. In case of a child plan where the entire sum assured is received, it is susceptible to the danger of getting spent too early. Look out for child plans that offer the facility of financial support along with the premium waiver option. In such plans, the life insurance company pays the premium on your behalf. You need to ensure that your child Ulip has this feature.