Child Plans, A typical Child Education Plan offers the combined benefits of savings and protection for the child. There are both Unit-linked and Endowment insurance plans that help the parents in building a corpus over a period of time for the financial security of the child. These plans are normally taken by the parents on behalf of their children, to ensure that there is both life insurance taken on the parent’s life (to ensure that in case of the unfortunate demise of the parent, the child’s education continues unhindered) as well as an opportunity to create an investment for the child’s future financial requirements like higher
education and marriage. Hence in summary, if a parent wants to financially secure the future of their children and also fund a major event in the child’s life then one must certainly purchase a child insurance plan.
A child plan offers comprehensive coverage providing both protection and an investment opportunity and are available in both non-linked and linked types.
Sum Assured (SA)
The sum assured (SA) in such a plan is the monetary benefit that is paid out in event of the unfortunate or untimely demise of the policyholder(mostly the income earning parent) and can go upto 10 times the gross earning of the policyholder at the time of taking the plan.
This is the amount paid by the policy holder to avail this policy and is dependant on the sum assured opted for, the maturity benefit planned, the tenure or policy paying period and the age of the insured. One may opt to pay the premium annually, semi-annually, quarterly, and monthly mode of payment or even a single premium depending on their financial situation.
The Parent should choose the maturity amount based on the future requirements of the child’s future. Depending on the amount of money needed for future education, marriage, and the time (age of the child) at which it will be needed, the parent can ensure they plan for an appropriate maturity amount under the chosen plan.
Similar to the maturity amount, the policy term for the opted plan should also be in line with the financial corpus required at a future date and the premium paying capacity of the insured.
Waiver of Premium Benefit
Waiver of Premium (WOP) is normally a default rider of a child education plan because of its relevance to such a plan. This feature comes into if the policyholder dies or contacts a critical illness during the period of the policy and the insurance company waives the future premium payable under the said plan without reducing the insurance protection. The sum assured will be paid to the nominated beneficiary, while the due premium for the remaining policy term is waived by the insurance company.
This is an option which allows the parent’s to withdraw a part of the accumulated corpus under the said plan for any financial emergency that may arise during the tenure of the policy.
A ULIP Child education plan allow the policyholder to choose the type of fund in which they would like to make an investment (hybrid, debt, and equity)q as well as Dynamic Fund Allocation and Systematic Transfer Plan also.
Add On Riders
To ensure there is a more comprehensive coverage under the policy, there are a few riders that can be opted for by the policy holder. These riders include:
As we had seen earlier, children’s plans offers a range of relevant and unique coverages to the policyholder (parent). It is a policy plan that every parent should plan to invest in, in the interest of the financial well being of their child, in terms of higher education, financial stability with a corpus to build on and finally their marriage and coms most handy in the case of the unfortunate demise of the policy holder. Some of the key benefits of the Child’s Plan include:
Satisfactory Corpus for the Child’s Future
Irrespective of the premium opted for, child plans are able to provide as much as 10 times the amount paid as sum assured in case of any unfortunate incident. While no amount of corpus can ever be enough, it is important for the parent/policyholder to plan for the future by building a satisfactory corpus given the escalating costs of higher education and the aspiration of many parent’s to send their children abroad for their studies. It is expected that this corpus will send the child on their way to achieve their dreams.
Financial Support in Difficult Times
In the extremely unfortunate incident of Death of the parent/policyholder, not only are their emotional consequences but also financial repercussions, especially if the parent is the bread winner of the family. This is where an insurance plan comes to the rescue in the following ways: 1) the sum assured is paid to the beneficiary as an immediate benefit and 2) future premiums payable are waived subject to opting for the Waiver of Premium (WOP) rider. This then helps the child to continue their education unabated.
Child plans also have the option of withdrawing money during the tenure of the child plans at any time after the initial lock in period. This can be used for any emergency that arrives unannounced – maybe some unexpected expense for education, medical bills for unforeseen treatment of the child when he/she is hospitalised due to any ailment or a more serious medical condition.
Income Protection and Growth
The child plan also helps safeguard the income of children who start having an income as a young adult, be it as a child actor, musician or other artist and performer. The plan helps them invest at a young age and ensure this corpus grows significantly for their later years as adults.
Death / Maturity Benefit
These plans also pay for the unfortunate death of the policyholder or at the time of maturity of the plan, whichever is earlier. The sum assured is paid out to the guardian or parent or nominee.
Tax / Loan Benefit
One can avail tax benefits under a child plan on death or maturity and claim profits under section 10 (10D). Moreover, the premium paid for a child education plan is eligible for tax deduction under section 80C of the Income Tax Act, 1961. The policy holder can also avail a loan if required.
Collateral for Loans for Higher Education
Higher education is extremely expensive whether it is in elite institutions or abroad, but this is definitely an aspiration for most Indian parents today. A Child plan becomes useful if one intends to secure a loan for higher education and the corpus created under the child plan can act as a collateral for the same.
As is the case with most other life insurance products/plans, there are different types of Child Plans in India which are:
|Type of Plan||Benefit/Coverage|
|Single Premium Child Plan||The policyholder pays a lump sum single premium for the entire policy term and stays invested for the full term. Such a one time payment could also attract some discounts from the insurer.|
|Regular Premium Child Plan||As is the case with most life insurance policies in the market, regular premium child policy offers periodicity flexibility on payment of premium by allowing the policy holder to pay premium monthly, quarterly, half-yearly, or yearly.|
|Child ULIP||Child ULIP plan gives additional benefits of investment/life coverage apart from tax savings. Benefits includes payment of sum assured on the demise of the insured parent/guardian/policyholder while future premiums are waived off. Also maturity amount is paid when the policy matures, creating a necessary corpus for future expenses.|
|Traditional Child Endowment Plan||Here, the premiums are invested in lower earning debt instruments and the bonus payable at maturity|