Taking life insurance in the name of children is foolish

I had discussed in a post that how much and where you should invest for your children’s education. Keep many options in front of you.

Bank Fixed Deposit, PPF, Sukanya Samriddhi Yojana, Mutual Fund, ULIP, Traditional Life Insurance Plan etc.

Many investors ask the question which policy to invest in for the education of the child. There is a problem here. It is foolish to take a life insurance policy in the name of children. Let us know why.

Taking life insurance in the name of children is foolish

Life insurance should be on the life of the mother or father, not on the life of the children.

This is because if something happens to you (the income earner in the family), don’t expect any impact on investment for children’s education. But if the life insurance is on the life of the child, nobody will get anything in case of your death. Now you think: in such a situation if something happens to you (mother/father), then how will the investment for education continue?

nor will there be a source of income, Nor will the investment for studies continue.

Why is life insurance given on the lives of children?

Above we have seen that taking insurance on children’s life is no less than stupidity. Insurance companies would also know this thing. In such a situation, why does the company sell such products where there is insurance on the lives of children.

There is a reason for this too.

Life insurance company cannot sell any product which does not have life insurance. A portion of the premium on your life insurance policy goes towards providing you life cover. The higher your age, the higher the portion that goes towards life insurance. In this case, there is an impact on the returns.

If the policy is in the name of the children (insurance will be in the name of the child), then the returns on the policy become slightly better.

But as we have seen above, there is a problem with this way of thinking. Better returns are a good thing, but if in your absence what will happen to the investment for children’s education.

also note this

Some life insurance plans also come where insurance is only on the life of the child, but you can buy Premium Waiver Rider by paying additional premium. In such a plan, all future premiums are waived off in case of death of the parent. By doing this the investment continues even after the death of the proposer (mother/father). Some people may like such plans but according to me this is not a very economical way.

What you should do?

Do not buy any such policy where the life cover is on the life of the child.

It would be better if you keep investment and life insurance separate for children’s education. Choose investment according to risk appetite and investment horizon. I have discussed your options in this post.

Now one problem is left, how will the investment for children’s education continue after you. For this take life insurance for yourself. Note the insurance should be on your life. Term insurance is the best and cheapest way to buy life insurance. If something happens to you, the insurance company will pay a lump sum amount to your family. This amount can be used by your family for common household expenses and investment for children’s education.

If you are not sure that your family will be able to utilize the lump sum amount properly, then you can consider an Income Replacement Term Insurance Plan (Income Replacement Term Insurance Plan) can think of. In this type of term insurance plan, the sum assured is paid in monthly installments.

Even after this, if you want to invest in a child plan for the education of the child, then definitely read this post.

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