Child Plan
Child Plan for your Loved Child. You give your child the best possible care when he/she is an infant, send him to the best schools and colleges, and want the best future prospects for him/her. A child is always a bundle of joy. Right from the time it comes into your life till the child is all grown up and independent, your child is your pride and joy.
Caring for a child, though delightful, involves expenses. Whether you are nurturing your infant or paying for his/her school and college fees, you have to spend money. If you want your son/daughter to have a bright career, you have to devise a financial plan for your child’s future. Higher education requires money and given the current costs, the requirement is quite considerable.
So, how do you plan for your child’s financial future? You invest, don’t you? While your investments might yield you a considerable corpus to provide for your child’s future expenses, what would happen if you face premature death? How would you secure your child’s future then?
A child insurance plan comes into play in these situations. The plan provides an avenue of investment for your child’s future and also guarantees the promised corpus even if the parent dies prematurely.
Types of Child Insurance Plans
Child ULIP
The primary feature of children’s ULIPs is that they give individuals a three-pronged advantage, together with high insurance coverage, disciplined investments, and participation in the equity market. Three advantages mean that the sum assured is given to the nominee child on the death of the insured parent, the future premium is waived off and the maturity value would be paid at the time of maturity, ensuring that your children’s future dreams are fulfilled.
Unit Linked Insurance Plans
The payouts at maturity of ULIPs are determined by the markets, as the funds in ULIPs are invested in equity instruments. This plan is good for longer tenures (more than 10-15 years) of policies. Insurers may provide the option of choosing between different investment funds, allowing you more control over the money you have invested. Some dynamic plans are also available where the profits may be transferred directly and automatically from equity to debt instruments.
Traditional Endowment Plans
These policies provide stable returns in the form of bonuses over the sum assured. In general, bonuses on traditional plans are paid from 2nd year onwards, and you can check if the bonus is in cash or if a reversionary bonus will be compounded or have a simple interest.
Features of Child Insurance Plans
Most often, the life insurance policy for kids is designed to provide a safety net to the child in case of financial difficulties during important decisions in life. These plans are available in both linked and non-linked varieties.
Premiums
Payable as a lump sum at the start of the policy tenure. You may also choose to pay it frequently on a regular basis or for a limited period of time. Most Life Insurers provide options such as monthly, quarterly, half-yearly, and yearly. The Premium amount varies as per the sum assured chosen by you in the case of traditional child plans.
Sum assured
This is the amount that will be paid out in case of the policyholder’s demise. Most of the time, the sum assured should be above 10 times the current gross income of the insured.
Maturity
The maturity amount should be chosen with an eye on the future. Assuming your child is 8 years old, and his policy will get matured in 10 years’ time, then you should take into consideration factors such as inflation and interest rates. If you fail to consider these factors, the released funds may fall short of the requirements in the future. Also, plans such as single premium plans may not provide appropriate maturity benefits and features, so kindly check the policy documents clearly before applying.
Policy Tenure
Mostly meant for children up to the age of 18-21. Here, tenures can be selected from birth until the child reaches a predefined age. The policyholder/insured is not to be 70-plus years at the policy’s maturity.
Segmented pay-outs
With child life insurance policies, you can select if the child will get paid as a lump sum, or in yearly installments. Such a setting will help in paying dues such as college fees, marriage expenses, higher education expenses, appropriate funds for starting a business, etc.
Premium Waiver Benefit
An inherent feature of child plans is that premium waivers become applicable when the insured dies in a stipulated duration of time. In this situation, the sum assured will be paid out to the beneficiary, while the premium for the remaining tenure will be paid by the insurer. At the end of the tenure, the maturity amount will be provided as detailed in the policy document. In case a premium waiver is not provided automatically with the plan, you should opt for a premium waiver rider.
Riders
Specific riders are available that give you more out-of-life insurance policies. The riders are available in three basic categories – premium waiver, critical illness, and accidental death and disability. The premium waiver may already be added to your plan i.e. Inbuilt, so please check the policy documents in this regard. The critical illness rider provides coverage for a set of predefined critical illnesses, while accidental death and disability riders pay an additional sum assured in case of unfortunate accidents that cause disability or death of the insured.
Partial Withdrawal Clause
A partial withdrawal clause allows the policyholder to make a partial withdrawal, in case of a financial emergency. Many policies also come with the option of partial liquidity.
Choice of Funds
A child insurance policy such as a ULIP scheme allows a policyholder to select the choice of investment funds (equity, debt, hybrid, and money market). You also have an option of a Systematic Transfer Plan and Dynamic Fund Allocation.
Benefits of Child Insurance Plans
- Flexible disbursing of funds on maturity or death.
- Premium waivers in case of demise of insured within the premium collection period.
- Secured loans are widely available against child insurance plans.
- Tax benefits under various sections of the Income Tax Act.
- You may select either ULIP or an endowment plan.
- Flexible periodic premium payment options.
- Funds are available on the demise of the insured before maturity, and/or if the policy has reached maturity.
Importance of Child Plan
Secures the future of the child
The child plan continues even after the parent dies and pays the maturity benefit as promised. When a parent buys a child plan, he or she is assured that whether he or she lives or dies, the plan would pay a benefit on maturity. This benefit can then be used to fund the child’s education or marriage. Thus, a child plan secures the child’s financial future.
There is no burden of paying the premium if the insured dies/Waiver of premium
Child plans also have the unique feature of an inbuilt premium waiver benefit. This benefit waives the future premiums if the parent dies during the plan term. So, the parent is not only assured of a maturity benefit but he or she also knows that the family would not face the burden of paying any premiums to continue the plan. The plan would continue automatically and pay benefits as and when promised.
The plan can be customized with riders
Child plans, whether traditional or unit-linked, understand the importance of securing funds for your child. That is why this child plan also allows various add-on riders which increase the scope of coverage. The policyholder can choose any rider as per his requirement and enhance the coverage provided by a child plan.
The plan helps in saving taxes too
If you want to know another reason why a child plan is important, sample this. The premiums which you pay for the plan are tax-free under Section 80C up to a maximum of Rs.1.5 lakh. Moreover, any death benefit or maturity benefit received under the plan is also completely tax-free.
Creating a corpus
Having a corpus for your child’s future needs is essential and a child insurance plan helps you in creating such a corpus. By providing coverage for a premature death the plan also protects your financial plans for your child from going haywire in case of death.
Disciplined Savings
A ULIP Child Plan allows a policyholder to start disciplined savings for meeting the future life goals of their children. A monthly premium payment mode in a ULIP provides the same rupee cost-averaging benefit that a Systematic Investment Plan (SIP) provides under a mutual fund scheme. Thus, consistent and disciplined savings provide the best possible returns for meeting the future financial requirements of your children.
Critically Chosen Maturity Date
You must always choose a maturity date that is a few months prior to the date before which you would require the amount. For instance, if your child would require financial help at the time s/he turns 21, then your policy should ideally mature 6 months before your child turns 21. This way you would not be in a pickle, in case of any transactional or claim settlement delays.
The right time to buy a child plan
The ideal time to buy a child plan is at the earliest possible timeframe. However, it would be ideal to gift your child with a child insurance plan when s/he turns 1 as their very first birthday gift.
What is Child Education Plan?
A child education plan is a policy designed specifically to meet your child’s future needs. It is a combination of savings and insurance. New-generation child plans also include Unit Linked Insurance Plans which provide an option to create wealth as well. The primary purpose of a child education plan is to provide financial security to your child so that their education is not hindered in any way in case of your absence or unfortunate demise. Thus, it is important to have a child plan. Mentioned below is a list of the best child plans in India.
How to Get the Best Child Plan?
Start Early
This is the most common step which policyholders hear all the time but it is true. Starting as early as possible will help you build a larger corpus for your child-specific goal. In fact, most of the policies start giving maturity payout benefits by the time the child reaches a milestone or reaches the age of 18 years. For example, starting a child plan when the child is 1 year of age is a better option than investing when the child is 10 years. In the latter case, the maturity payout will be delayed by the time of college and you will be required to take a loan.
Economic Variables
Never underestimate the market. A child plan is a scheme with a long investment horizon. You need to take into consideration multiple economic variables such as inflation, the rising cost of living and education, etc. This will help you determine the actual cost of your child’s future needs. This can change drastically if the child wishes to study abroad where the cost of education is twice as much as in India.
Terms and Conditions
You should, by all means, read and understand every aspect of the child plan mentioned in the terms and conditions and policy document. This will help understand how a particular plan functions and the returns and benefits associated with the same. You can also compare various terms and conditions of different policies for better clarity.
Premium Waiver Benefit
This can be availed as a rider option as well. Most insurance companies decide to waive off any future premiums in case of the death of the parent during the premium paying term. This does not have an impact on the policy as the child will receive complete benefits on maturity.
