Recently a couple called me up asking me to draw an investment plan to fund their child’s education. The parents were very alert and wanted to plan for child’s education right from when the child turned 6 months old. I presented them with an investment plan, they seemed to be happy as they had to start with very low monthly investment. Upon asking about their income, the father replied that he was the sole bread earner and child’s mother was a housewife. She had never worked before and looking at her education I thought it would be difficult for her to get a job in case of need.

They were happy with the investment plan and wanted to go ahead with it. When I asked the father about his insurance, he said I am healthy and don’t need any insurance as of now. Asking about insurance, it sent a wrong signal that I was trying to sell him insurance and they told me we will meet again later and complete the formalities. Few months later, I came to know that they visited a mutual fund distributor and started SIP as per my suggestion. The only reason they avoided me is I asked if the gentleman had insurance.

Now consider a situation where they continue SIP for 3 years and suddenly the father is no more or his earning capability ends. What about the investment plan? So when you are planning monthly investment for your child’s education or any other need, have a contingency plan of how to accomplish it in case of your absence or in case your earnings stop.

The only way to achieve this is by buying an insurance cover. It will ensure that if you are not there, the insurance amount will be invested lump sum to continue with the investment plan.

When a financial advisor asks about insurance, his goal is not to sell insurance. His goal is to provide you with a complete financial plan which has plan B if plan A fails.

The following table shows how much you need to invest to fund your child’s education. I have assumed sum required to be Rs. 25,00,000 and expected rate of return is 13%