Benefits of Child Insurance Plan

Benefits of Child Insurance Plan

Picture the day you held your newborn child in your arms for the very first time. That moment, you realised you were responsible for this tiny bundle of joy. By nurturing, caring, and raising this tiny person, you will be preparing them for the world. Taking on such a responsibility is indeed no easy feat.

As a parent, it is your primary duty to protect your child's future. Getting a good education and getting married are two big milestones in your child's life. Your goal is to help them achieve their dreams and to see them succeed in life. It is essential to have a solid fund to ensure a bright future for your child. Due to rising inflation, educational costs, and other expenses, it can be quite difficult to set aside substantial funds for savings.

That's where a child plan comes in. A child plan provides the security net your child needs so that all their dreams are taken care of, without putting you in financial hardship.

Let's take a closer look at what a child plan is.

What is a Child Plan?

A child plan is an investment cum insurance plan to meet the financial needs of a child.

  • The insurance aspect financially safeguards the child in the event of your unfortunate demise.
  • The investment avenue helps you grow your wealth that is sufficient enough to secure your child's future. You can use this money for key milestones like college education, marriage, etc.

Here, the parent owns a plan, and the child is the beneficiary.

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Major Aspects of A Child Plan

  • Death Benefit
    In child plans, the policy does not terminate if you, the policyholder, pass away. Any future premiums will be waived by the insurer until maturity.
    • In case you pass away during the policy period, the child will be entitled to the death benefit, which includes the sum assured.
    • If the child is a minor, the death benefit payout will be given to the appointee chosen by you during the policy purchase. They are responsible for keeping the funds safe and secure until the child turns 18.

Afterwards, no further premiums will be due until the policy expires, and all benefits will remain in effect.

  • Maturity Benefit
    When the policy matures, the maturity benefit will be paid, which is basically the sum assured.
    Maturity benefits are payable in the form of:
    • Assured payouts
    • Lump sum payouts, or
    • As a combination of both.

Note: The maturity benefit varies across products.

  • Payout Customization
    Based on the child's needs and goals, you can customise the payouts in the following ways -
    • As Assured Payouts -
      If you choose this option, a predetermined percentage of the sum assured is paid throughout the benefit payout period, either annually or biannually. In some plans, payouts are available only after a few years have passed after the premium payment period has ended. There may be plans without this condition as well.

Note: Benefit payout periods and frequencies vary based on the product you select.

Generally, assured payouts are intended to cover regular expenses like tuition, co-curricular and extracurricular activities, etc., in order to help the child fulfil their needs.

  • As Lump Sum
    The lump sum is payable as a maturity benefit (upon when the policy matures) or as a death benefit (in case you pass away).
  • As A Combination Of Both
    This is a suitable option if you have both recurring and one-time financial goals in mind, like educational expenses and wedding costs.

Note: Customization of payout options varies across insurers and products. Make sure you go through the policy wording carefully before making the purchase.

  • Other Customization Options
    Child plans can be customised to accommodate all your child's life goals. The various customisation options include rolling premium payment period, rolling policy period, and multiple benefit payout period. By choosing the suitable option, you can make sure that all of your child's major milestones are accomplished at the right time.

For instance, your child may need financial support for various milestones in their life -

  • When your child turns 18, they need to be admitted to an undergraduate program or some other course.
  • At 21, they may decide to pursue PG or another degree.
  • At 24, they may decide to get married.

In order to accomplish all of these, substantial funds are necessary. So you can adjust the benefit payout period to achieve all of these key goals.

The policy's rolling premium payment period allows you to pay off premiums according to your convenience. You can choose to complete it in a few years or over a longer period of time. It's up to you to decide which option is most suitable for you based on your financial situation.

Let's say you have the option of choosing between a 6-year or 30-year period. In this case, you can choose your premium payment period to be 6 years or 13 years or 24 years or 30 years, etc.

  • Enhanced Coverage
    You can choose to increase the cover amount by 50%, 100%, or 200% when purchasing the policy. You can opt for this by paying an extra premium. In the unfortunate event that you pass away during the policy period, the additional sum assured will be paid immediately to your nominee.
    They can choose whether to receive the sum assured as –
    • A lump sum or
    • A combination of a lump sum and an annual/monthly income.

Important Note: The enhanced coverage feature varies across insurers and products. Ensure that you read the policy wording carefully to know the conditions associated with it.

  • Loyalty Additions
    In case you have paid all your premiums on time, some insurers may reward you with loyalty additions as a token of appreciation - once your premium payment period gets over. Insurers will increase your chosen sum assured by 20% as a loyalty addition.

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Here’s an Example to Help You Understand Child Plans Better

Megha has an 8-year-old son, Vikas. He is passionate about music, and so she plans to save funds to enrol him at Berklee College of Music, Boston. In 2022, she decides to buy a child plan for Rs 25 lakhs with a policy term of 10 years. To keep the policy active, she will have to pay a premium of Rs 30,000 per year. The sum assured will be paid as the death benefit as well as the maturity benefit. And, Megha chooses to go with a lump sum payout at the end of the policy period.

Here's how the benefits will be paid out -

  • Maturity Benefit
    The insurance company will pay Rs 25 lakhs when the policy term is over, in 2032. By this time, Vikas will be 18 years old, and ready to go to music school. The cover amount could be used to pay for the music program.

  • Death Benefit
    In the event that Megha passes away during the policy period, the sum assured of Rs 25 lakhs will be paid as the death benefit and the policy will continue to be active. The insurer will waive the premiums for the remaining years. When the policy matures, Vikas will be entitled to receive the cover amount of Rs 25 lakhs. He can use the cover amount to pay for the music program.

Wrapping Up!

When it comes to securing your child's future, there can be no compromises. As a parent, you desire to provide the best opportunities for your children in terms of well-being, safety, career, and financial security. So, invest in the right child plan today - to ensure their dreams are reached at the appropriate time - even in your absence.