Personal Finance Queries For The Day (24-06-2019)

Personal finance queries responded by industry & subject-matter experts.

Aalok Bhan - 24 June 2019

Sudhansh, Mohali: I am 32. I have a two-year-old child. I am planning to buy a child plan for her. What are the things I need to consider while deciding on the best-suited plan?

It’s good that you’re thinking about a child plan while your child is young. As with any investment, the earlier you begin, the more benefits you reap in the long run due to power of compounding. A child plan offers the benefit of securing important milestones of your child’s life such as higher education, marriage etc., by offering a triple layered protection.

The following points should be kept in mind while purchasing a child insurance plan:

  • The life goal for which you are purchasing the plan – If it is under-graduate education, post-graduate education, marriage etc.

  • The age at which the funds will be needed – If your plan is to secure your child’s under graduate education, take a plan that start providing the funds (in most of the child plans e.g. money back, there is provision of partial payments spread over multiple money backs) when your child is 18 years of age, such that the funds are available when needed

  • Financial appetite and risk management for paying premiums – Take a plan for which you are sure you will be comfortably able to pay premiums for the full premium payment term

  • Take inflation into account while planning – Ensure you take a plan which upon maturity, will be able to pay for the expenses planned, keeping in mind inflation and costs at the time. E.g. Higher education costs 15 years on will be much higher than today.

Mahesh, Kanpur: ULIPs allow switching between funds. Is it very important to switch funds when invested in a ULIP? How frequently should one do that?

ULIPs are a market linked life insurance products that offer a great investment option with the added benefit of protection. ULIPs offer a switching facility which enables the policyholder to match his risk appetite to market conditions with the portfolio mix. This risk appetite may change with every life stage, E.g. An unmarried person with no dependents may choose to structure the ULIP with a greater percentage of equity, offering higher returns, but also at a greater risk. For someone married with children, the choice maybe to structure it with a greater element of debt so as to be take on moderate risks with moderate returns.

If you are market savvy and have time to do it independently, the option can be exercised by you else the services of fund’s expert managers can be availed to do so on your behalf. It also gives you a chance to switch a specific number of times beyond which a nominal fee is charged. It is however not recommended to make switches too often as one should give for the benefit of any change to reflect on one’s portfolio. A fund manager would be able to guide you on the optimal number of switches and best time to do so.

The queries are responded by Director & Chief Marketing Officer of Max Life insurance.