In the jungle of insurance, what is types of insurance is relevant to your child, and at which stage? Parenthood comes with many challenges and juggling feats, we hope this will help simplify the process of acquiring the necessary insurance for children.
Insurance for children: Here’s what you need to know
1. Prenatal Insurance
Did you know that you can buy insurance for children even before they are born?
Did you know that you can buy insurance for children before they are born? Pregnant mums can do this from as early as 18 weeks into their pregnancy. Prenatal insurance essentially protects you financially by paying a lump sum of ($5,000 in the case of 3 local insurers) in the event of pregnancy complications or congenital diseases when your child is born.
It also comes with hospital care benefits, which pay you $100-200+ for each day of hospitalisation. For different insurers, the coverage varies as to whether it covers the mother or the child. The limits for claim also vary.
These prenatal insurance are a way for the insurer to gain a foot into the life insurance business for your child once he or she is born, as you can extend or convert the plan into an investment-linked insurance plan and/or add in supplementary riders (eg cover for critical illness) for your child after he or she is born.
Beware though that investment-linked policies are the most expensive type of plans with the lowest coverage, and you may wish to consider a whole life insurance plan instead.
The benefit however is that by extending your prenatal insurance, typically medical underwriting is not required, which means that should your newborn have certain health conditions, these will not affect his insurability with the existing insurer.
2. Whole Life Insurance
Insurance for children: Whole life insurance provides coverage from critical illness with hospital care benefits.
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. You can later add riders like critical illness coverage and hospital care benefits 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. It might even be tripled in the first few decades of your child’s life.
Besides protection, whole life insurance policies also accrues ‘cash value’. This means that it is a form of savings for you. Beyond a certain point, you would be able to draw out a lump sum greater than the total premiums 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 accumulated 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.
3. Endowment Policies
It’s never too early to start saving for your child’s future!
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 assured is typically low. Because the primary objective is to encourage savings. That too, in a disciplined manner, giving you a return higher than bank deposit rates.
Hence, you should clear your objective. If you want to save for your son’s university education who has to undergo national service, it will be good to start now. You can do so when he turns age 11 if you are taking up a 10-year policy. At age 6 you can take up a 15-year policy. At age 1 you can take up a 20-year policy.
You should opt for a longer term for endowment policies. Because 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. This will cover 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. You can also calculate the amount needed and inflation at that point of time. 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.
How do you feel about buying insurance for your child? When do you think you should buy it? Let us know here!
Source: Moneysmart
