Parenting brings a lot of joy, and at the same time, it also demands a whole new set of responsibilities towards children. Securing the future of a child is the ultimate aim of any parent, and they wish to be the financial pillar for their child.
Apart from the regular expenses, a child will need funds for higher education in the near future. To fulfil this need and safeguard the future of your child, one of the most popular ways is child insurance plans and term insurance plans. Both of these are life insurance plans that give you the peace of mind that even if you are not around, your child will not have to compromise on his// her dreams. Let's discuss in detail child insurance and term insurance and compare them both.
What is a Child Insurance Plan?
A child insurance plan, as the name suggests, is an investment explicitly made for a child's future financial requirements. As parents, you can purchase child insurance plans with a specific future goal, like higher studies, a wedding, or your child’s career. Along with this, a child plan also offers life-cover benefits. Check out the most common features of child insurance plans-
- Parents are the policyholder and the child is the beneficiary
- A child plan offers both a life insurance cover and investment for your child's future
- In case of the unfortunate demise of the policyholder, the child would receive the death benefit (the payouts received are pre-decided, and can be in the form of periodic payouts)
- Most child plans come with the Premium Waiver Benefit that can either be a rider/ a built-in feature. In case of death/disability of the parent, the future premiums are paid off, but the plan continues as before
- Upon maturity of the plan, the child receives the amount dedicated for the particular purpose like their wedding or higher education Because this plan also has investment segment, the premium may be a little higher than term insurance plans.
What is a Term Insurance Plan?
A term insurance plan is solely a life insurance scheme purchased for a specific period. Unlike a whole life insurance plan, term insurance is not always for the whole life of the insured individual but only for a specific tenure. The beneficiary/nominee receives the lump sum amount in case the policyholder passes away during the tenure. Check out the features of a term insurance policy-
- Affordable premium rates charged for the pure life coverage
- It is purchased for a fixed period of tenure (say 20 years)
- The nominee receives death benefit only. There is no maturity benefit provided in case the policyholder survives the policy tenure
- Some term plans offer a maturity benefit known as TROP (Term Return Of Premium). Under such a term plan, the policyholder receives a maturity benefit (equal to all the premiums paid so far) if he/she survives the policy tenure. These plans have higher premiums than pure-term insurance plans.
Child Insurance Plan & Term Insurance Plan: Differences
The table below mentions the basic differences between a term plan and a child insurance plan-
- Child Insurance Plan
- Term Insurance Plan
- It includes both life cover and provides maturity benefits.
- It provides only life cover with no maturity benefit.
- It is intended for a financially secure future for a child.
- It can be bought at any stage of life to secure the future of your child/loved ones.
- The child is the beneficiary of the plan.
- Anyone can be made the nominee/ beneficiary of the plan, including the child.
- The premium payable is higher because of the investment option given.
- The premium is relatively low because there is no investment model.
- A child plan has both a death benefit (if the policyholder dies) and a maturity benefit.
- A pure-term plan has no maturity benefit. TROP (Term Return of Premium) Plans have maturity benefits (return of premiums paid so far).
- Partial withdrawal under a child plan is possible only for unit-linked insurance plans.
- Partial withdrawal is not allowed since it is a pure life cover with no element of savings.
- Tax benefits can be availed under 80C of the old tax regime, and the maturity benefits are tax-free under 10(10D) of the Income Tax Act, 1961.
- Tax benefits can be availed under 80C of the old tax regime. For TROP plans, the maturity benefit is tax-free under 10(10D) of the Income Tax Act, 1961.
- Additional tax benefits (under Section 80D) can be availed by those who opt for critical illness rider coverage.
Term plans and child insurance plans differ at several junctions. However, both of these have one basic similarity, that is, the intent of the plan. Both these plans are meant to provide financial stability to your loved ones even when you are not around them. With a child plan being more specific to a child's future financial needs, a term plan can be purchased keeping in mind any of your near and dear one's future. So, choose a plan best suited to your needs!