Planning for your child's life is like a chess game, with you planning each move carefully in order to create a better future for your child. As a parent, your goal is to ensure your child has everything they desire, whether it is admission to a prestigious university, enrolment in their favourite sports academy, etc. However, with the rising inflation, skyrocketing education expenses, and an overall increase in costs - it can get pretty hard to do so.
You should have a financial plan in mind to take care of your child’s aspirations whether or not you are around. And, this is why you should buy life insurance for your child.
A child plan is a type of life insurance that will ensure your child’s financial well-being. You own the plan and your child is the beneficiary. It is sort of a piggy bank for your child’s future. The money grows over time and can make a world of difference - when it comes to securing your child’s future. The plan is a mix of insurance and investment and allows you to accumulate funds that can be used to cover milestones such as higher education, wedding, etc.
By investing in a child plan, you are not only ensuring your child's financial security but also investing in their dreams. It provides peace of mind, giving you the assurance that you have taken all necessary steps to provide your child with a secure future.
When it comes to buying a child plan, there are many factors to consider. Let's discuss the steps involved in purchasing a child plan in this article. Let’s see!
How Do You Buy A Child Plan?
Here are the things you need to consider before buying a child plan -
1️⃣ Decide The Cover Amount
A child plan is intended to cover various milestones in a child's life. From providing a secure education to helping them achieve their dreams, the cover amount should be chosen considering the future goals of the child. So, it is important to select a cover amount that is able to accommodate all the key junctures of their life.
Here’s what you should do -
- Prepare a list of milestones you wish to cover, such as college fees and wedding expenses.
- Make a list of your finances - your assets like any life covers, cash, gold, etc. you own and liabilities like loans, etc. By doing this, you'll know how much you can pay on your own.
- Conduct a detailed analysis of the milestones you plan to cover, and include an inflation rate of 10-12% for a minimum of 12-15 years because these goals are expected to happen a few years down the line. By incorporating inflation into your calculations, you'll have a safety net for future expenses. This will also ensure that your child's goals are achievable and that you are adequately prepared for their future financial needs.
2️⃣ Plan Customizations
You can customise a child plan based on your budget and convenience. This can include -
? Premium Payment Frequency:
Depending on your preference, you can pay your premiums monthly, quarterly, half-yearly, or annually.
? Premium Payment Duration
A child plan also lets you choose how long you want to pay your premiums. You can choose to pay the premiums in a single go or spread out the payments in the form of instalments over a period of time - depending on your finances.
? Mode of Payout
Depending on the child's needs, the mode of payout can be decided. This may be -
- Assured Payouts
A percentage of the cover amount that is paid during the benefit payout period, either on an annual or biannual basis. Your choice of product determines the benefit payout period and frequency. Some plans allow you to receive payouts only after a few years, once the premium payment term gets completed. However, there may be other plans without this condition as well.
- Lump Sum
The lump sum benefit will be paid out upon your untimely demise or maturity of the policy.
- A Combination Of Both.
This option offers the best of both worlds: a lump sum amount and regular assured payouts - perfect for those who need to cover their child's educational goals as well as wedding costs.
Riders are optional add-ons that cover other crucial financial risks. They can be added to your base policy at a certain extra cost to enhance your base coverage. For example, if you are diagnosed with a critical illness listed in the policy document, the insurer will pay you an additional payout - if you have purchased a critical illness rider.
Here are some riders available with child plans -
- Accidental Death Rider
- Hospital Care Rider
- Accidental Disability Rider
- Critical Illness Rider
- Surgical Care Rider
- Waiver of Premium due to Disability Rider
- Waiver of Premium due to Critical Illness Rider
Note: This list may vary across products and insurers. You should read the policy documents carefully in order to understand the riders available under your policy and their associated terms and conditions.
3️⃣ Premium Payments
The premiums for the plan you choose are determined based on the following factors -
- Your age
- Your child's age
- Cover amount
- The premium payment duration
- Any riders you've chosen
After you have submitted your basic information, selected your policy and customisation options, paid your first premium, and provided your necessary documents, the underwriting process begins. Once the application gets approved, you are issued the policy and can expect to receive your policy documents soon after.
4️⃣ Annual Renewal Payments
In order to keep your policy active, you need to make timely premium payments. Doing so will ensure that your child is protected in the event of an unexpected emergency. If you do not pay your premiums on time, your policy may lapse - leaving your little one vulnerable.
Pro Tip: Make sure you set up your standing instructions on a bank account, not a credit or debit card because they come with an expiration date, which may interfere with your payment. This way, you can ensure that your payments are made regularly and on time.
How Does A Child Plan Pay Back?
A child plan pays the following benefits -
1️⃣ Assured Payouts
As mentioned earlier, assured payouts are a percentage of the sum assured that shall be paid in instalments over the policy term. The payout frequency and type may vary - according to the product and insurer.
2️⃣ Maturity Benefit
The maturity benefit is basically the sum assured you choose while buying the policy. It may be payable in the form of -
- Assured payouts
- Lump sum payout, or
- A combination of both.
3️⃣ Death Benefit
A child plan is designed to provide financial security for the child in the event of the death of the parent. This guarantees that the child's future is secure, providing support and protection even in the worst of times.
The major benefit of the child plan is that even if the plan's owner, the parent, passes away, the plan will still remain active, yielding rewards long after its inception. Consequently, the insurer waives all future premiums and the funds continue to grow until the policy matures.
When the policy matures, the child will receive a lump sum payout based on the policy's terms. If the child is a minor, an appointee manages the funds until they become an adult (18 years old). An appointee is the person you assign during policy purchase and will serve as the child's financial guardian. They will be responsible for handling the money until the child turns 18 years of age.
Investing in a child plan is like planting a seed, you nurture it and it will eventually blossom into a secure future for your child. This long-term planning will enable you and your child to reap its benefits over time, without having to compromise on their dreams and goals.