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ULIP INSURANCE

How Can I Choose the Right Plan For My Child Future

Karan Sharma Karan Sharma 14 January 2020

Child insurance plans are tailor-made to meet the future financial needs of your children. Learn more about child insurance plans in this article.

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Due to the rising cost of education, it is advisable to purchase a child insurance plan. The cost of a two-year full time MBA is Rs. 20 Lakhs from a premier business school in India. Coupled with a 10% rise in inflation, the amount will swell to Rs. 40 Lakhs by the time your child is done with high school. A sum invested regularly in a child education plan with help accumulate a corpus that will secure your child’s financial future.

Selecting an ideal child education plan is essential for the long term development of the child’s future. In addition, a child plan also reduces the financial stress on the parents during the time of admission.

Here are three points to consider before purchasing a child insurance plan.

  • Invest in a Benefit Plan - By benefit, we mean premium waiver benefit. You can purchase this benefit as an additional option or as an essential feature which is part of the base plan. Under this benefit, the insurer waives off future premiums while continuing to fund the child insurance plan till maturity in case of the death of the parent who is the policyholder. This feature ensures that the policy continues to exist even after the death of the parent and the maturity benefit is intact. In short, look for a plan with a premium waiver benefit.

  • Equity Linked Plans - A child insurance plan is a long term investment. You can take advantage of the time frame by investing in equity related instruments. You should consider opting for unit-linked child plans. Equities deliver the best returns over a longer investment horizon and parents should make the most out of this at maturity. A unit-linked child plan offers risk cover as well as good returns.

  • Endowment Plans - Endowment plans are a safe investment if your investment horizon is less than 10 years. Endowment plans will not accumulate as much wealth as ULIPs do, but you will be adequately covered against market uncertainties.

Benefits of Child Plans

Here are a few benefits of child plans.

  • Provides Cover - In case of death of the parent, the child insurance plan provides money to help the family meet regular expenses such as those related to school education.

  • Waiver of Premium - This feature is available in child insurance plans. The protection is meant for the benefit of the child only. In case of the untimely demise of the insured parent, all future premium payments will be waived off and a payout will be released to meet the immediate and regular needs of the child depending on the plan.

  • Future needs - A child insurance plan can be used to meet the education needs of a child. Many child education plans are designed to meet higher education expenses. Under these plans, the payout is released upon reaching a particular milestone such as passing 12th standard and so on.

  • Regular Investment - As per a child insurance plan, you are required to invest regularly throughout the policy term in the form of premium payment. A ULIP not only provides cover, but good returns as well.

  • Medical Treatment - Many child insurance plans provide the facility to withdraw money during the tenure of the child investment plans. Partial withdrawals can be utilised in case the child is hospitalized due to an ailment, accident or a serious medical condition.

  • Rider Benefits - Many child insurance plans offer additional rider add-ons that can be attached to the base plan at additional premiums. To name a few, Accidental Death and Disability Benefit Rider, Term Rider or Critical Illness Rider Benefit.

  • Fund’s Choice - Unit linked child insurance plans allow the parent to select the type of fund to make an investment. You also have the option of Dynamic Fund Allocation and Systematic Transfer Plan.

  • Tax Saving - With a child insurance plan, you are eligible for annual deduction from your total income of upto Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961, for premiums paid for child plans along with tax free maturity proceeds under Section 10(10D) of the Income Tax Act, 1961. Example of a Child Plan

Head 1Head 2Head 3Head 4Head 5
Contnent R1C1 Contnent R1C2 Contnent R1C3 Contnent R1C4 Contnent R1C5
Contnent R2C1 Contnent R2C2 Contnent R2C3 Contnent R2C4 Contnent R2C5

Conclusion

Quality education is essential for child development. It is advisable to purchase a child plan when the child is young so that by the time he/she finishes school, the child plan would have accumulated a significant corpus. This corpus can be utilised to fund higher education or meet immediate needs of the family.

Karan Sharma
Written by Karan Sharma
Content Specialist and Strategist, foolishly creative and always ready for a game of 'Call of Duty'.