Life Insurance for Young Parents: A Complete Guide

A new parent’s life is filled with happiness and hopes with the birth of a child. However, a new child also brings in a whole set of responsibilities and challenges.

Having and raising a child requires careful financial planning. Pregnancy and childbirth involve doctor visits, medicines, nutritional supplements and finally the delivery of the child. The pre-natal and post-natal care involves significant expenditure.

Once the child starts growing up, the parents need to start building a corpus for their future needs. Additionally, the biggest concern for the parent is the well-being of the child in case of any sudden eventualities. What will happen to the child in case the parent meets with an untimely demise? This brings in the need for life insurance.

A young parent is already balancing the joy and challenges of being a new parent. To ensure they rest assured about the financial planning and insurance for parents, we have compiled this quick guide.

If you are a young parent, read on to understand the importance of life insurance and financial planning and how to go about it.

Important Types of Life Insurance for Young Parents

• Term Insurance: A term insurance offers a pure life cover. You get extensive coverage  at affordable premium prices. Having a term policy is extremely important for a young parent. The extensive sum assured will help secure the child’s financial future. It can fund their education or marriage while also helping the surviving parent pay off any outstanding liabilities.
  
  

  You can check out Tata AIA term policies with comprehensive coverage, where we combine the benefits of an online term plan with a range of pre-integrated features like critical illness benefit, hospicare benefit, accidental death benefit and accidental total and permanent disability benefit.
  
  

  Your child is completely dependent on you for all their requirements. Ensuring that they are protected through all eventualities, such as diagnosis of a critical illness for a parent, parent’s hospitalisation, permanent disability, along with a life cover, allows you to rest assured about their future.
  
  

• Guaranteed¹ Returns Plans or Unit Linked Insurance Plan (ULIPs): Life insurance plans with maturity benefits allow long-term savings and wealth creation.
  
  

  You can save for your child’s future needs with a life insurance savings plan that combines assured returns and life cover.
  
  

  If you wish to combine life cover with market-linked returns, you can opt for a Unit Linked Insurance Plan. Considering it is subject to market vagaries, you can use a ULIP for long-term planning.
  
  

  When planning for your child’s goals, do not forget to plan for yours too. You and your partner will have your own financial ambitions, such as starting a business, buying that favourite car, upgrading to a bigger house, going on a foreign trip and so on. Buy a life insurance plan with regular bonus² payouts and maturity benefits to help you achieve these goals.
  
  

• Retirement Plans: Most parents focus only on securing their child’s future, all the while forgetting to plan for their retirement. Once the children grow up and leave the nest, you should have enough corpus to lead your lives and live your dreams. Retirement plans ensure that you do not have to depend on your children for your needs, even after retirement.
  
  

Tips for Financial Planning and Insurance for Parents

• Modify your existing financial plan: You should first realign your plan when the pregnancy gets confirmed. As mentioned above, pre-natal care and the actual birth involve significant expenditure. Plan for it well in advance.
  
  

  Once you are close to the birth, modify the plan again. Now take into consideration the post-birth expenditure. You can start investing in long-term savings plans and investment avenues to build considerable savings for your child’s future financial needs.
  
  

  You can buy a savings plan for your child where you can keep putting a certain amount every month. Have separate savings plans for their higher education, marriage and so on.
  
  

  You will also need to ramp up your life insurance coverage. You need to account for the higher expenditure and financial requirements. Moreover, you need to add your child to your existing health insurance plan. Account for the added costs of insurance premiums in your financial plan.
  
  

• Make a detailed expenditure plan for your child’s future: Education is getting costlier by the day. While you cannot plan your child’s future to the T, you can set a broad financial goal for their education and related expenses.
  
  

  You can use a wide range of future goals/dreams calculators available online. At Tata AIA Life Insurance, we offer multiple Life Planning Calculators to help you with this.
  
  

  You can mark the key highlights of your child’s life - the start of school, 10th grade, junior college, college, higher education, overseas education, marriage, etc., and start earmarking specific amounts you will need at each stage. Based on that, you can buy  a guaranteed¹ returns insurance plan or a Unit Linked Insurance Plan to build a decent corpus.
  
  

  With the growing emphasis on all-round development, do not forget to save some money for extra-curriculars and hobbies like sports, arts, etc.
  
  

• Diversified investments: Make sure you do not put all your eggs in one basket. Prepare a diversified plan. Buy a good term insurance plan for extensive coverage. Guaranteed¹ returns insurance plans allow you to earn assured long-term returns. You can benefit from the market movements with a ULIP.
  
  

  You can also buy  non-life insurance products, such as an Equity Linked Savings Scheme, Public Provident Fund, Mutual Funds, etc. The government has launched several savings schemes for the girl child, such as the Sukanya Samriddhi Yojana. You can check those out as well.
  
  

• Keep modifying insurance: It is important to keep changing your insurance and investment portfolio from time to time and make necessary changes.
  
  

  For instance, your child decides to take up an expensive educational course or decides to travel abroad for further education. You may need to increase your investment amount to accommodate the higher expenditure.
  
  

  Or, your child might decide to take up an extra-curricular activity like sports, arts, dance, musical instruments, riding lessons, etc. You need to start a new fund to pay for the training and classes.
  
  

  Similarly, you may take up an student loan for their higher studies or a home loan to buy a bigger house so that they have an independent room for themselves. You will need to increase your life insurance coverage to allow for any debt repayment in case of your unfortunate demise.
  
  

  Also, do not forget to account for inflation. Make sure to analyse the prevailing trend of inflation and plan for future expenses accordingly.
  
  

Conclusion

Hope this guide helps young parents plan their insurance and financial portfolio. Remember to focus on long-term planning and well-thought-out investments. Make a proper financial plan, chart out your child’s future needs, do not forget to reassess and modify, choose the right products, diversify and account for inflation.

In the midst of all this, do not forget to spend quality time with your family. More than the financial aspects, it is the time, attention, nurture, love and lessons from a parent that truly shapes a child’s life!

L&C/Advt/2022/Jun/1260