What insurance policy you should adopt for your children?

Planning for the future of your children is a very important step that all parents go through. With increasing costs of living and inflation, one needs to ensure that our kids are adequately equipped when it comes to their financial needs. Insurance policies are one way to ensure the same.

There are broadly two kinds of insurance policies : Term Insurance and Endowment Insurance. In the strict definition, Term insurance pays a lump sum upon the death of the life insured and Endowment insurance pays a lump sum on maturity if the life insured is alive at the end of the policy term. These days, however, insurance policies have a combination of the two which provide both death benefit and survival benefit.

For your kids, there are insurance policies which have money back options. That is, a portion of the money is paid back to you during the policy term. For example, the term of the policy could be 25 years and you may be expected to pay the premiums (Premium Paying term) for 5 years. A portion of money would be paid back in 10 years, 15 years and 20 years and the lump sum would be paid at the end of the policy term which is 25 years. This concept is customizable in many insurance products and you can design it in such a way that the money-backs are available at appropriate time for the kids. For example, you can ensure one portion comes back when they would join high school, another when they enter college and another when they are ready for marriage etc. The best way to approach is to look at when you would need lump sum money (for their education, marriage etc) and work backwards to identify the right term and insurance product.

Also, it is advisable that you take a term insurance cover for yourself keeping your wife and kids as beneficiaries. This would ensure that even if something untoward happens to you, your family will not have financial problems.