Last Updated on October 10, 2022 by Parentology
There are various kinds of insurance out there, so how do you know which one suits your child at the different stages of their life? Parenthood is already difficult, so let us help make things a bit easier by simplifying the process of finding the proper insurance that your child needs.
Healthcare treatment, hospital bills and even day surgery bills can add up to quite a sum if the adequate coverage is not taken. The most basic coverage is actually the hospitalisation plan as it covers the basic necessities of coverage should the child fall sick or be hospitalised due to accident.
Also, hospital plans are usually the cheapest as the child is still young. Some maternity plans also have free hospital plan that is applicable to the newborn when the child is born.
Whole Life Insurance
There are many gifts you can give your child but one of the best is ensuring they have insurance coverage. Whole life insurance is something that every child should have. It offers protection, especially with additional add-ons such as critical illness coverage and benefits for hospital care.
This insurance is important because if your child becomes terminally ill, critically ill, permanently disabled, or even passes away, this insurance will provide a lump sum that can help you keep your finances in order. There are a number of options available and some will even double or triple the amount of money that you will receive within the first several decades of your kid’s life.
Besides the obvious benefit of providing protection, whole life insurance also has a cash value. This means that it can be used as savings. Once a specified amount of time passes, you will be able to draw out a lump sum that is far greater than the total of the premiums you have paid for the policy. This makes it a great safety net for emergencies.
Just take note that once you draw out the cash value of the policy, it will terminate the protection benefits and you will need to get another package. However, the benefit of withdrawing the cash value is that you will be able to obtain a substantial amount of funds right away due to the amount of money you have invested into the policy over the years.
It is common for parents to give their children whole life insurance and once the child is able to provide for themselves, the parents will switch the payments over to them. This will ensure that your child has suitable protection and a sizeable nest egg but it will also teach them how to be financially responsible and prudent.
Some maternity plans are also bundled with whole life plans and are able to transfer to the newborn with no or simplified medical underwriting.
These kinds of policies are meant to be used in order to save for a certain purpose over a long term. The typical terms for an endowment policy are 10, 15, or even 20 years. These policies do offer some minor protection but they are quite low and should only be used in dire emergencies. Their main purpose is to allow for disciplined savings, to provide a greater return of investment compared to a typical bank.
If your goal is to save for your child’s college fund or for something expensive for your kid in the future, then this is the perfect policy to consider. For example, if you would like to ensure that you can afford a good university education, then you can get a 20 year policy when they are 1 or a 15 year policy when they are 6 or a 10 year policy when they are 11.
A longer term is usually a better idea because the monthly amount will be substantially lower compared to a short term policy. Longer term policies usually have higher returns too. Think about the expensive things your child may want in their 20s, such as a house, college education, or even to travel abroad. Getting an endowment policy early in your child’s life will ensure they can afford these things in the future. If you would like help figuring out the math behind this, your bank will love to provide the assistance you need.
It is possible to purchase insurance for your child before they are even born. A pregnant mother will be able to get prenatal insurance at the first trimester of their pregnancy but it is different with every insurer. This type of insurance will provide a lump sum in the event that there is a complication with the pregnancy or if your child is born with a congenital disease.
Prenatal insurance also offers hospital care benefits, which will pay you $100 to $200 for each day you and your child are in the hospital. However, it is important to take note that every insurance company is different and the type of coverage will vary. So do research to find an insurance package that will suit you.
This insurance can also be expanded once your child is born. You can convert it into an investment-linked insurance plan or whole life insurance coverage, and add supplementary coverage such as early stage critical illness coverage.
Investment-linked policies (ILP) that are usually coupled with maternity plans are flexible and provide the lowest coverage. Unlike investment focused ILPs that focuses more on wealth growth and lesser coverage.
If you would like to have better coverage, then it is a good idea to switch over to whole life insurance instead. The advantage of using investment-linked insurance is that the conditions your child is born with will not affect their insurance or coverage. So if they have certain kinds of health conditions, you may want to keep your prenatal insurance rather than getting whole life insurance.
However aside from ILPs, some other instruments include Unit Trusts and Managed Portfolios.
Make sure to consider maternity coverage, whole life and endowment insurance policies as these are great ways to protect your family against the unexpected, as well as a great tool to ensure financial success for your child in the future. These policies provide protection and act as a nest egg for a rainy day. Always stay prepared because we do not know what the future has in store.
What is your opinion on purchasing insurance for your little one and when do you think you should get coverage?