Page 13 - 5. June 2016

ಸಂಪುಟ ೬, ಸಂಚಿಕ ೬, ಜ್ನ್, ೨೦೧೬
ಉಪ್ಯುಕಿ ಮಾಹಿತಿ

What is types of insurance are relevant to your child, and at which stage? We share 3 types of insurance for
children to consider.
1. Prenatal Insurance: We have covered in the last edition
2. Whole Life Insurance
3. Endowment Policies

We propose to cover them in the current edition:

Whole Life Insurance
One of the gifts you can give to your child is insurance coverage
from a young age. Buying a whole life insurance is primarily for
protection and riders like critical illness coverage and hospital
care benefits can be added on to the policy.
This means that should your child fall critically ill, become permanently disabled, terminally ill or pass away in
any point of time in his or her life, the insurance policy will pay out a lump sum known as the sum assured.
There are several options in the market where the sum assured is doubled or even tripled in the first few dec-
ades of your child’s life.
Besides protection, whole life insurance policies also accrues ‘cash value’. This means that it is a form of sav-
ings for you. Beyond a certain point, you would be able to draw out a lump sum greater than the total premi-
ums you would have paid over the years, for any emergency contingencies.
Do note that once you have drawn the cash value out of a policy, it terminates and all protection benefits are
also terminated. The compounding effect of saving for the long term is such that the savings you have accu-
mulated jump quite substantially the longer the policy has run.
Many parents I know buy a whole life policy for their child but strike an agreement for their child to continue
paying for their own policies once they start working. Besides bestowing a gift of savings and protection for
your child, this teaches them financial prudence and responsibility too.
Endowment Policies

These are regular premium policies whose primary purpose is to save for a particular purpose over the long
term. They are usually for a term of 10, 15 or 20 years. There is some protection element but the amount as-
sured is typically low as the primary objective is to encourage savings in a disciplined manner, giving you a
return higher than bank deposit rates.
Hence, if your objective is to save for your child’s university education, and assuming your child is a boy and
he has to undergo national service, it will be good to start on such a policy at age 11 if you are taking up a 10-
year policy, at age 6 if you are taking up a 15-year policy, or at age 1 if you are taking up a 20-year policy.
A longer term is encouraged for endowment policies, as the compounding effects mean that you will have to
set aside a lower amount to save monthly and also typically, your average returns are higher for a longer
term chosen.
You may also wish to take up an endowment policy as a wedding gift to your child for wedding expenses or
the down payment on a property. Similarly, do work backwards based on the age you expect your child to
need these funds and the amount needed, accounting for inflation, at that point of time in the future. Your
banker will be more than happy to work out the sums for you!
Final Note: Do consider prenatal, whole life and endowment insurances to protect your family financially
against any unforeseen circumstances and as a tool for accumulating financial resources for valuable gifts like
a university education, savings for a rainy day and potentially, a wedding gift

13