Child Plan

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.

Periodic Payouts

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:

1. 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.

2. 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.

How my Premium is Calculated?

When it comes to buying a child plan, there are some key factors that determine the premium amount.

Sum Assured

The higher the sum assured, more is the premium you need to pay. When you choose the high sum assured amount, obviously you have to pay the higher premiums.

Age of the insured

At lower age, the premium amount is less as the mortality component in the premium is lesser whereas at higher ages the risk in one’s life aggravates leading to increase in premium due to increased mortality charges in your premium.

Health Conditions

If you have any previous or prevailing health conditions, you may be charged for the higher premium amount. Adverse health will attract higher premiums and at instances, the decline of the proposal as well from the insurer.

Family Medical History

If any member of your family has previous medical history, your insurance company may charge you with the higher premiums on the assumption that you may also be prone to similar sought of illness or disease, genetically inherited.

Riders

If you opt to choose one or more riders, the premium amount for the plan will increase.As an additional benefit comes at an additional cost.

What are some Smart Buyings Tips?

The following points you may keep in mind before buying a Child Plan

Assess the Financial Liability: Primarily, assess the funds you require to meet the financial liabilities like child education and marriage. This further helps you decide the right cover to be opted under the child plan to meet the set financial goals with adequate corpus.

Keep Inflation in mind: When buying a plan, it is important to consider the inflation factor. Keeping in mind the skyrocketing education and related costs, you should invest in a plan that can provide adequate funds to your child when needed the most at important life stages for your child.

Opt for Ideal Tenure: The term or tenure of the policy is a very imperative factor. The ideal tenure will help to create an adequate fund for various milestone stages in child’s life. Ideal tenure should be computed as the child’s age at which you need funds (like for at the age of 18 or 21 ) minus the current age of the child.

Opt for Online Buying mode: It is prudent to compare policies online and buy the one that helps you meet your financial obligations with ease. Online buying is the most unbiased, convenient and cost effective way to buy insurance plans including child plans.

Opt for Child Plan with inbuilt Waiver of Premium Rider: You should consider buying a plan that has a built-in waiver of premium rider. With this rider, you can ensure that the policy continues for the remaining tenure, even if something happens to you and objective of taking the policy is met.

Is there any Add on Cover/Rider with Child Plan?

Riders provide additional cover at nominal premiums. You may opt from the following riders:

1. Waiver of Premium Rider

As the name suggests, the future premiums are waived off in the events like death or disability of the insured or policyholder as per the policy contract. The policy continues to survive till the end of the tenure, with the waiver of future premiums.

2. Critical Illness Rider

There are severe illnesses which disable an individual temporarily or permanently resulting in loss of earnings. The treatment cost of such illnesses is massive due to medical inflation. To take care of the medical cost involved in such illnesses like Heart Attack, Cancer, Paralysis, Coronary artery bypass surgery, Major organ transplant and much more, a critical illness rider can be opted.

3. Accidental Death Benefit Rider

Accidental death benefit rider gives extra financial benefits to your nominee in case you die an accidental death. There is an accidental death Sum Assured which is paid to your nominee apart from the base Sum Assured of the policy in case of your unfortunate demise.

(Note: The rider benefit, conditions and eligibility criteria may vary from insurer to insurer)

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.

1. Criminal or illegal act

2. Act while racing or betting

3. Act under the influence of illegal drugs or alcohol

4. Disability or accidents due to any involvement in strikes and riots, military service, or police force.

Do’s and Dont’s in a Child Plan

Read the do’s and dont’s related to the child Plan.

Do’s	Dont’s
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

Child Plan Glossary:

Here are the basic terminologies used in a child Insurance parlance.

Bonus: Is the additional amount which the insurer gives to the policyholders out of the profits earned in a financial year.

Claim: The insured event where the insurance company will pay the policy proceeds under the contract.

Guaranteed Additions: It is the guaranteed payout expressed as some percentage of the sum assured which is added to the policy and paid on death or maturity as per the policy terms.

Insurer: The Insurance Company is known as the insurer.

Insured: The individual whose life is being insured under the life insurance contract.

Insurability: It means all conditions that are related to the health and life expectancy of an insured.

Insurable Interest: This means that there should be some financial loss to the policyholder who is taking an insurance policy on the insured. Without insurable interest an insurance contract holds invalid.

Money Backs: Periodic payouts paid back to the policyholder as some percentage of the sum assured on regular intervals.

Moral Hazard: Wrong intention or facts to seek the life insurance plan which affects the decision of the prudent underwriter or insurance company.

Misrepresentation: Statements or facts of any kind that does not represent the correct intent which affects the insurance policy contract.

Premium: The policyholder agrees to pay a cost for seeking life cover from the insurance company as consideration for buying the insurance policy.

Policy Term: The specified number of years for which the policyholder is insured with the insurance company.

Riders: The additional benefits linked with the base policy taken by paying an extra premium by the policyholder.

Sum Assured: The life cover which the person has taken under his life policy which is payable in the insured event.