KUALA LUMPUR, Jan 14 — It has been known as one of the most expensive investments you can make. Raising a child from birth up until they graduate can cost millions, in the hopes of setting them up to a path to success in whatever they choose to be. Can parents lessen this financial burden?
While there is no doubt that raising children will cost a significant amount of money over time, there are financial instruments that can help by providing protection and offer some form of savings over time. Yup, that would be investing in various insurance plans. Let’s take a look at three insurance plans that you can invest for your children.
Pre-natal or pregnancy insurance
This insurance plan is unique as it offers protection for both mother and child. As its name implies, pre-natal or pregnancy insurance offers protection for mother and child during pregnancy up till the child is three years old. This insurance plan can even be subscribed from 12 months before pregnancy, all the way to 35 weeks into pregnancy.
Pregnancy — or even maternity insurance, as it is also called — covers a wide range of pregnancy-related complications that standard life and medical insurance policies do not cover.
For the child, this policy covers congenital illnesses such as Down’s Syndrome, cerebral palsy, spina bifida, as well as hospitalisation in the Intensive Care Unit (ICU) or high-dependency ward.
Generally, this policy is subscribed as a rider to a mother’s current life or medical insurance policy. It provides a one-time payout as well as coverage of hospitalisation bills, which is helpful to cover the additional costs when complications or illnesses arise.
Here’s a less common insurance plan that can actually benefit children in the long term. Even if its name suggests some form of protection for your education, it is actually a useful savings-and-protection plan for your child that offers a lump-sum benefit or payout upon maturity (at the end of the policy). As such, it is often described as a plan that covers the cost of your child’s education.
Parents can subscribe to an education insurance policy for their child from as young as 14 days up until 14 years old. Education insurance lasts between 18 to 23 years, which is just about the age when the child graduates.
There are two types of education insurance: an endowment policy and an investment-linked policy. It can get pretty complicated, so let’s break them down:
Endowment policies combines protection with a savings component, relying on the power of compounding interest to increase the policy’s lump sum benefit. That said, there are two types of endowment policies: participating and non-participating. A participating endowment policy “participates” in the life insurance fund’s profits, while a non-participating policy does not.
A non-participating endowment policy offers a small interest rate and a guaranteed payout at the end of the policy; some insurance providers may also offer bonuses based on the child’s academic performance. Meanwhile, a participating endowment policy will also have a guaranteed payout rate, but it is dependent on the insurance company’s fund performance.
Both carry minimal risk, which some parents may favour. For those with a higher risk appetite, there’s the investment-linked policy. It combines protection with elements of investment, similar to some investment-linked life insurance policies.
Now, there are actually some benefits to this policy, and the key is its flexibility. Parents can choose which funds the money will be invested in; generally, there will be several funds with varying risk levels. Besides that, you can even choose to increase the monthly premium in the future if, say, your income increases.
However, given that the lump sum benefit upon maturity is dependent on the fund’s performance, the payout can either be spectacular or it may even be less than the total accumulated premium you paid. If you wish to subscribe to this policy, it’s best to look closely at the fund’s past performance as a guide.
Finally, there’s the most important one: Protection for your child’s health. Health insurance would cover hospitalisation and medical costs, critical illness, or total permanent disability ( TPD). There are various types of health insurance policies you can subscribe, which can make this a confusing and daunting task. But given that protection for your child is a long-term one, here’s what we’d recommend.
Parents should opt for a life insurance policy with a medical coverage as a rider (an add-on policy that “rides” on an existing policy) for their child. This gives the highest amount of coverage, but it will also come with higher premiums. This is much more beneficial in the long run compared to a standalone medical coverage, which is significantly cheaper.
Medical coverage as part of a rider would allow you to obtain critical illness (CI) coverage, payer waivers (no longer required to pay premiums if the payer dies/suffers from TPD/ CI), and allows for better medical coverage plans (higher annual/lifetime limits), and more extensive coverage. A life insurance policy also has a savings or investment-linked element to it, so that is also a plus point.
In the long run, you would end up paying less in premiums as the investment-linked savings can help cover for the increase in premium over time. Plus, your child can also start paying for the premium when they start working.
Keeping an eye on the future
Having a child may be a financial burden, but it is a privilege many parents find rewarding. These insurance policies ensure that while heavy, the financial strains related to having children is lessened so you can focus on providing the very best for them.