What is a Child Insurance Plan?
As a responsible parent, you would always want your child to get the best of everything. To ensure that you fulfill all the dreams that you have for your child, financial planning for their secured future is imperative. Child Insurance Plan is the right way to ensure that you have a safe future for your child, which offers strong financial security for your child’s future in your absence. Child insurance plan is an endowment plan which offers both death and maturity benefits.
Why should I buy Child Insurance?
Being a parent, it’s your prime responsibility to guard the future of your child, and you can do this by investing in a child insurance plan. Here are some top reasons to buy the Child Insurance Plan.
Secured Future of Child
Life is not certain, and you never know when and where death awaits you. In the event of your premature demise, who would take care of your child’s education, marriage, or other financial responsibilities? In this tough time, your insurance company provides a lump sum to your child who is the nominee. Child plans guard the child against the financial ramifications of the death of a parent.
Ensure Financial Protection
Child plan will ensure financial protection in the event of unfortunate demise of the parent. Child plan ensures such events does not impact the future planning of the child.Many child plans come with an inbuilt benefit of the waiver of premium which suggests that the policy will continue even in the case of the demise of the parent and provide the due benefits timely.
Regular Saving for Child’s Education Needs
Giving your child a better education is one of the primary concerns in today’s age of escalating cost of education. Moreover, your child may also opt for higher education in India or overseas, which will cost huge. By investing in a child insurance plan, you need not to worry about the rising cost of education and finance needed for your child’s education.
Many child plans allow periodic payouts or partial withdrawals at the various milestone stages of your child like attaining the age of 16, 18 or 21 where the child is on the verge of deciding his/her career path, and as a parent you will certainly aspire to do the best in being a facilitator to follow your child’s dreams and aspirations. Such payouts reduce the burden of regular financial payout and allow to meet various education expenses and other needs of the child.
Cater to Extracurricular Expenses
These days barely education is not important. Rather, every parent aspires his/her child to be an all rounder. There are so many extracurricular activities for holistic development of the child like theatre, painting, sports coaching, horse riding, music, etc. which interests your child. Such talent enhancement needs to require extra infrastructure and finances. Child Plan will help you save a regular amount to spend for such activities in the long run.
What kinds of Child Plans can I opt from?
There are basically two broad categories of Child Plans available which are:
Traditional Child Plans
Traditional child plans carry the twin benefits of savings and insurance. On maturity, you are entitled to receive the sum assured plus the accrued bonus or guaranteed returns and on your premature death, the lumpsum amount is paid to your nominee who is a “child” under a child plan. For some plans, the child can be the life insured as well where parent being the policyholder. The traditional child plans offer safe returns on your invested premium amount to take care of the financial requirements for the child’s education, higher education, marriage, etc. Traditional child plans do not offer investment steering in your hands rather the insurance company invests your money as per the regulator’s guidelines. Traditional child plans are safe saving and investment tool for your child’s better future.
Unit Linked Child Plans
Unit linked child plans are such plans which offer a dual benefit of “market linked investment” to build a corpus for your child’s educational needs and “ insurance” to stabilize your child’s future financially in the event of your unforeseen death. The unit linked child plan will allow you to build a decent corpus over a period of time to provide your child a secure and robust financial future.
Unit Linked Child plans offer the flexibility and transparency in the investment in your hands. You may opt to put your money in equity (aggressive) or debt (conservative) related fund as per your risk capability. At maturity, the child ulip plan will give you a Fund Value which is the total amount of your invested fund. In the event of unfortunate death of the parent during the policy term, the unit linked child plan will provide Sum Assured or Fund Value, (whichever is higher) to the nominee.
What are the Benefits of Buying a Child Plan?
There are several benefits of buying a Child Insurance Plan which are:
Death Benefit: Every child plan either unit linked or traditional offers death benefit which is Sum Assured in the case of the traditional child plan and higher of two (Sum Assured or Fund Value) in case of the unit linked child plan. The death benefit is payable in the event of the death of the life insured during the policy term.
Maturity Benefit: At the maturity of the plan, the sum assured along with some guaranteed benefits are payable in the traditional child plans where as in the unit linked child plans, the total of fund value is paid at the maturity which no. of units multiplied by net asset value (NAV).
Periodic Money Backs: Most of the child plans offer periodic payouts or money backs at regular intervals to help in meeting the financial requirements at various life stages of a child.
Guaranteed Additions: Guaranteed additions are allocated to the policy corpus or sum assured in terms of additional sum assured in traditional child policies and in terms of additional fund units in case of the unit linked child plan. It is usually paid at the maturity of the policy.
Partial Withdrawals: Under a child insurance plan, you have the option to make partial withdrawals. You can also liquidate the plan via partial withdrawals and could suffice the financial requirement via such withdrawals from your child plan.
Loan Facility: Since child plans are basically an endowment policy, it offers loan which can be taken against your policy once the policy has acquired surrender value. The loan amount ranges between 80% to 90% of the surrender value with applicable interest rate by the insurer.
Rider Benefit: Various add-on or riders can be taken with the child plan to enhance the protection and life coverage. To avoid certain eventualities during the policy tenure rider benefits can be attached by paying extra premium. Few vital riders which can be taken are waiver of premium, accidental disability, critical illness, etc.
Tax Benefit: A child insurance plan duly provides the tax benefits. You can avail the tax deduction for the premium amount under section 80C and income from the plan is tax-free under section 10 (10) D of the Income Tax Act, 1961.
Do’s and Dont’s in a Child Plan
Read the do’s and dont’s related to the child Plan.
Take the right term of the policy for getting the benefits for your child at the right age
|Compute the right sum assured, keeping in mind the growing education costs||Go by what your agent is proposing you to buy. Research at your end as well|
|Fill the proposal form yourself mentioning all the details correctly and accurately||Buy a plan which is offering you lowest premiums. Check on the benefits also under the plan|
|Check the plan features and benefits of various child plans available by comparing online||Forget to read the fine print|
|Take the right term of the policy for getting the benefits for your child at the right age||Invest beyond your risk appetite in case of the child ulip’s and beware of fund erosion|
What is Not included in the Child Plan?
This plan becomes null and void, if the insured commits suicide within one year of commencement of the policy.
The plan benefits are also not paid, when found engaged in following circumstances.
- Criminal or illegal act
- Act while racing or betting
- Act under the influence of illegal drugs or alcohol
- Disability or accidents due to any involvement in strikes and riots, military service, or police force.