The first thing that strikes is providing for education (graduation as well as post graduation).

The most often repeated statement, ‘Assume that a two year MBA program in a leading business school costs Rs.5, 00,000 at present. Your child is five years old now and will pursue the management degree at the age of 20 years. This gives you a time frame of 15 years. Assuming that the inflation rate is 10% per annum, the education would cost Rs.2,088,624. Now that seems a handful, doesn't it?’

The dynamics of planning for the child's future have changed radically over the years. The conventional method of providing for the child was to just set aside some amount of money in a savings bank account. These funds would then be utilized for the child's life stages. A few parents would also make investments in fixed deposits with the intention of utilizing the maturity amount. However, it would be safe to say that such an approach is not only outdated, but also inadequate in the present scenario.

Life insurance plays an important role in an individual's financial planning exercise. Insurance can assist individuals in planning for their own life stages as well as provide for their child's future. It also secures the child’s future in case of any unfortunate event. Various types of child insurance products are available in the market today.

Child insurance plans have traditionally played an important role in securing the child's future. With a plethora of children insurance plans available in the market, it becomes difficult for most parents to evaluate them objectively. Individuals need to understand the dynamics for planning their children so that they can best utilize the alternatives available in the market.

Parents must consider at the outset that they would have to build as sufficient corpus for their children especially if the child is to be sent abroad for education or a professional post graduation degree from the premier institutes in the country itself. As in our above example, a 15 year planning time frame has raised the amount required considerably, parents must keep this in mind.

As a parent, one would generally plan from the perspective of making funds available for:

• Education

• Marriage

• Seed capital for business

The factors to consider while planning,

• Time frame for building a corpus

• Age at which the fund would be required.

• Approximate amounts to build the corpus.

• Investment avenues to be considered.

• The amount available to the child in case of death of parents or disability of the premium-paying parent.

Child plans come in two broad variants –Traditional child plans and unit linked insurance plans (ULIPs). The primary difference between the two lies in the way they invest their premium. Traditional plans invest a major portion of their money in debt instruments like corporate bonds and government securities (as specified by the regulator). Conversely, ULIPs can invest across equity and debt markets in varying proportions.