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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. 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. 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. Do you know what a child insurance plan is?
Child plans are life insurance plans which promise to safeguard the financial corpus payable by the plan, even if the parent (whose life is insured )suffers an untimely death. Child plans are usually taken on the life of any of the parent who has a minor child. The plan has a death benefit and a maturity benefit. Moreover, there is an inbuilt premium waiver benefit under the plan. The policyholder pays the premiums and aims to create a corpus by investing in the child plan. If the insured dies during the policy term, the death benefit is, usually, paid to the family for dealing with the financial loss. However, the plan does not terminate.
The future premiums are waived off and paid by the insurance company. After the stipulated tenure is over, the plan matures. When the plan matures, the promised maturity benefit is paid which can be used for the child's requirement.
Thus, child plans ensure that the maturity benefit would be paid as and when chosen by the parent even if the parent is not around.
Child plans come in two variants – traditional plans or Unit Linked Insurance Plans. Traditional plans can further be offered as endowment plans or money-back plans.
Traditional plans are those plans which promise a guaranteed maturity and death benefit. Bonus, guaranteed additions and loyalty additions are usually added to the Sum Assured in case of maturity or death. Under traditional plans, child plans can comes as following variants –
ULIPs invest the premiums paid in the capital market. Therefore, the returns mirror the performance of the capital market and are inflation-proof. ULIPs score over traditional plans in the sense that they provide higher returns in tune with the economic growth of the markets. Moreover, ULIPs are also flexible. They allow partial withdrawals during plan tenure, switching facility to change the investment strategy, etc.
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.
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, 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.
Child plans, whether traditional or unit linked, understand the importance of securing funds for your child. That is why these plans also allow 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.
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. That too without any limits! So, a child plan not only builds a corpus for your child it also saves your tax liability.
Given these important reasons, you should buy a child insurance plan if you are a parent and wish a bright future for your child even in your absence. 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 premature death the plan also protects your financial plans for your child from going haywire in case of death. Here are some popular child insurance plans:
|Plan names||Type of Plan||Sum Assured||Benefits payable||USP of the plan|
|HDFC Life Youngstar Udaan||Traditional endowment/money-back plan||10 times the annual premium||On maturity the Sum Assured is paid in lump sum if endowment variant is selected. In case of money-back benefit, a specified percentage of Sum Assured is paid. On death the Sum Assured is paid. If premium waiver option is selected the plan continues and pays a maturity benefit too.||ICICI Prudential Smart Kid Plan||ULIP||Up to 10 times the annual premium||On maturity the Fund Value is paid. On death, higher of Fund Value or Sum Assured is paid. Premiums are waived and plan continues. Fund Value is paid on maturity|
|Max Life Shiksha Plus Super||ULIP||From Rs.2.5 lakhs||Higher of Fund Value or Sum Assured is paid on death. Future premiums would be waived off. 10% of the Sum Assured would be paid every year following death till the end of plan term and Fund Value is paid on maturity. On maturity, the Fund Value is paid.|
|Bajaj Allianz Young Assure||Traditional endowment plan||10 times the annual premium||The maturity benefit is paid in instalment after policy completion. On death higher of Sum Assured or Guaranteed Maturity Benefit is paid. Premiums are waived off and maturity benefit is paid when the plan matures|
Let us understand the working of all types of child insurance plans.
Suppose, Mr. A, father to a 5 year old kid, needs money when his child would turn 20 years to send him abroad for higher education. He, thus, buys a child insurance plan for 15 years.
Case 1 – Mr. A needs a corpus of Rs.10 lakhs. So, he buys a traditional endowment assurance plan of a Sum Assured of Rs.10 lakhs for 15 years and pays premiums every year. If, during the 15-year period, Mr. A dies in the 7th year, the plan would not come to an end. The insurance company would pay a death benefit (usually the Sum Assured of Rs.10 lakhs) immediately and waive the future premiums. The plan would then continue for another 8 years. After completion of 15 years, the plan would mature and would pay a benefit of Rs.10 lakh. Thus, the child plan pays the corpus which Mr. A would require after 15 years for his child’s higher education.. Mr. A’s dream of sending his child abroad, thus, gets fulfilled even when he is not around.
Case 2 – Mr. A buys a money back plan which promises to pay 20% of the Sum Assured after completion of every 5 years. After the completion of first 5 years, Mr. A gets Rs.2 lakhs (Sum Assured is Rs.10 lakhs). Thereafter, in the 10th year also he gets another Rs.2 lakhs. In the 12th year of the plan, Mr. A dies. The plan pays the total Sum Assured of Rs.10 lakhs irrespective of the money-back benefits already paid. The premiums for the next 3 years are waived off and the plan continues. When the plan matures, the promised maturity benefit, 60% of the Sum Assured is again paid.
Case 3 – Mr. A buys a ULIP paying a premium of Rs.1 lakh every year for 15 years. If he dies during the plan term, the death benefit would be paid. The premiums would be waived off and the plan would continue. On maturity, the fund value is again paid which would help Mr. A’s family to send the kid abroad for higher education.