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6 Reasons to invest in a child insurance plan

dateKnowledge Centre Team dateJune 14, 2021 views292 Views
Reasons to Buy Child Insurance Plan | Child Education Plan

The underlying principle of any life insurance policy has traditionally been risk mitigation against loss of life. However, with evolving economic, cultural, and sociological fabrics, the type and magnitude of risks have also changed with time. We are now in a world marred with Volatility, Uncertainty, Complexity, and Ambiguity (VUCA) which makes people’s lives and lifestyles more vulnerable than ever.

Nuclear families, increasing middle-class aspirations, the rising cost of education, lifestyle ailments, and the risk of emerging diseases make insurance a multi-faceted financial cushion. A life insurance policy can be a solid source of corpus for old age, financial support for a child’s education, or even a substitute for income. In all setbacks in life, the child is often the most affected family member as his/her education takes a hit when the family goes through a crisis. Unfortunately, the lost time can never be made up.

A child education insurance can help mitigate risks so that education can continue without interruptions. Child insurance plans can help you ensure this continuity. This life insurance policy for a child has a single purpose, to help your child achieve the goal even if you cannot be there to ensure the same.

However, that’s not the only reason you should consider investing in a child plan. Here are six more compelling reasons to do so:

1. Build for the Future Education

You have the option of investing in two types of child insurance plans:

  • Unit Linked Plans or ULIPs
  • Moneyback Plans

ULIP plans give you the option of systematically investing in an equity fund. Thus, benefit from the market performance. At the same time, it also allows you to invest in debt funds. So, you can not only manage your investment risk from equity funds but also keep the corpus you build safely in the final few years of your investment.

Although you can invest in debt funds in the ULIP plan if you want to stay away from the stock market, you can also invest in endowment plans. These plans offer guaranteed maturity value so that you can be sure about the amount you will receive at the end of the term.

Both policies offer limited premium payment term. So, you don’t have to keep investing throughout the policy tenure. For example, if your child is 5 years old and you buy a child plan for 15 years, you can opt to pay premiums for, say, 10 policy years, i.e., until your child attains 15 years of age.

Understand if limited pay plans are a good idea?

From the age of 18 years, s/he can receive annual pay-outs that can help finance undergraduate education. Moreover, on maturity, you will receive the guaranteed sum assured along with accrued bonuses, if any. This can be utilized for post-graduate studies or marriage.

2. Cover Against Disability

One of the biggest roadblocks for you as a parent is the uncertainty of life. In case of serious disability, your capacity to earn the same amount of money could be affected. The best child insurance plans in India mitigate this risk and pay all future premiums so that the child’s education is unaffected.

Reasons to Buy Child Insurance Plan | Child Education Plan

For instance, Smart Future Plan from Canara HSBC Oriental Bank of Commerce Life Insurance pays the sum assured upon permanent severe disability arising out of an accident. The policy can continue towards the intended maturity value.

3. Helps in Achieving Future Goal

Several child insurance policies have dynamic and balanced equity-debt allocations. Experienced fund managers ensure that your investments fetch the best possible returns on your money. In some plans, there are auto funds rebalancing options that maintain an allocation in a specific proportion irrespective of market movements.

Here are 4 benefits of getting life insurance coverage for your child.

The returns in most child plans are very high due to sizeable investment in equities and almost always beats inflation in the medium and long term. This not just protects the money from getting eroded but also grows it considerably. Of course, policies with traditional endowment plans are also available. The returns may not be as high as in equity-linked policies, but the growth is generally stable and predictable. In endowment plans, your money is invested in bonds and Government Securities.

Emergency and unforeseen expenses can crop up anytime. A flexible policy that allows you to make partial withdrawals for contingencies can help overcome temporary setbacks without compromising on long-term financial goals.

4. Loans and Collateral for Loan

Higher education is costly and more so if your child aspires to study in western Universities. Despite generous scholarships offered to meritorious students, there is bound to be a shortfall in funds that have to be self-financed. Banks and Non-Banking Financial Companies (NBFCs) offer education loans only if there is strong collateral along with a co-signor. Insurance policies are the best form of investments that not only give milestone-based pay-outs but also stand as credible collateral to avail loans.

With a child insurance plan, you can avail of a loan on the policy from the insurer itself. After the lock-in period, the policy starts to acquire a cash value (surrender value). This surrender value keeps rising as you keep on investing in the policy. So, just in case you need money for the child’s education before the policy matures, you can avail of a loan on the policy.

5. Tax Benefits

Premiums you pay into the child insurance plans, up to Rs. 1.5 lakhs are eligible for deduction under section 80C of the Indian Income Tax Act. Also, the maturity value and any partial withdrawals you make after the lock-in period is tax-free.

The Lock-in period for ULIP plans is 5 years while for endowment plans it can be two years.

6. Coverage after Policy Holder’s Death

Some child plans, like Jeevan Nivesh Plan from Canara HSBC Oriental Bank of Commerce Life Insurance, can help you leave a legacy for your child as well as provide for her education. The policy can fulfil your obligations of providing for your child’s higher education and continue to cover your life till the age of 100.

Meaning, your child will receive the sum assured after your natural demise as your legacy.

Thus, with child plans, you can aim to fulfil more than just your child’s life goals. Just make sure you can select the right plan for the purpose.

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Frequently Asked Questions (FAQs) for Child Insurance

Any parent with a child between 0-15 years should opt for a child insurance plan. It helps you deliver inflation-beating returns for the various needs of the child while he/she grows up. As a child grows up, his/her financial needs increase substantially.

The importance of a good education cannot be overstated. Without quality education, a child may not reach his/her full potential. But the rising cost of education can become an impediment in higher education. A child education plan ensures that you do not have to worry about the money for your child’s education. It is a mix of insurance and investment. A part of child education plan is used to provide the financial security of insurance, while the balance is invested in market-linked instruments. The investible portion delivers decent returns in the long run, helping you accumulate a corpus for your child’s education.

Child plans are tailor-made financial products designed to secure children’s future. Typically, child plans have two components—insurance and investment. The insurance component protects the child in case of the parent’s demise, while the investment helps in accumulating a corpus for the child’s needs such as education and marriage. Child plans have several features that are primarily aimed at financially securing children. Some of the features are:

  • Maturity benefit
  • Premium funding option
  • Partial withdrawals
  • Milestone payments
  • Various investment funds
  • Protection of returns

The right time to buy child plans depends on the financial goal and the type of policy. Child insurance policies are long-term instruments and to generate decent returns it is advisable to invest as early as possible. You can invest in child insurance policies even before the child is born. Child education policies are relatively short-term policies. Child education policies can be chosen according to the financial goal. You can invest in child education policy as soon as the child is born if you plan to fund his/her primary and secondary education through the policy. If the aim is to accumulate funds for the higher education of the child, then you can invest at a later stage. In any case, it is not advisable to invest after the child has turned 15.

Child plans are meant to build a financial buffer for your child’s future needs, so, it is important to have a fail-proof plan. A few things to consider while buying child plans are:

  • Goal: It is pertinent to have a clear goal in mind as it determines the type and tenure of the policy. You should invest in a child plan as soon as the child is born. Starting early gives your investment to grow and helps you prepare better for your child’s needs. Similarly, selecting a long-term policy protects your child for a longer-term.
  • Premium waiver: While buying a child plan, it is mandatory to check if the premium waiver facility is available or not. Not having a premium waiver option can leave your child vulnerable in your absence.
  • Inflation: When you are investing for the long term, external factors like inflation cannot be ignored. Invest in ULIPs to generate inflation-beating returns. Invest 4G plan offers customers an option to choose from seven different funds with varying degrees of exposure to equity.
  • Bonus component: Along with the basic benefits of a child plan, insurance companies also offer additional benefits. Even though these benefits are small, they could add value considerably in the long run. For instance, Invest 4G plan provides benefits such as wealth boosters, loyalty additions and return of mortality charges.

The eligibility to open a child education plan is similar to a child insurance plan. The entry age is generally between 18 and 65 years. The maturity age is between 23 years and 80 years. You can start investing in a child education plan with Rs 5,000 per month or Rs 50,000 per year. The policy tenure varies between 5 years and 30 years.

There is no universal minimum instalment for a child education plan. Every insurer has its own minimum limit, even different plans have a different minimum limit. Invest 4G plan has a minimum limit of Rs 5000 if you choose to pay monthly premiums. The minimum premiums for quarterly and half-yearly payment tenures are Rs 15,000 and RS 30,000, respectively. In the annual mode, the minimum premium is Rs 50,000.

Child education plan can either be unit-linked or non-linked. The interest rate of ULIPs is determined by the fund chosen by the policyholder and the performance of the market. The interest rate for non-linked child education plan is decided by the insurance company.

The policy for premature closure of child education plan deposit differs from insurer to insurer. Some insurers allow premature closure of child education plan deposit. If the account is closed before the lock-in period expires, the fund’s value minus the surrender charges id deposited in the discontinued policy fund. The amount earns a minimum of 4% interest and will be paid to you after the lock-in period gets over. It the policy is surrendered after the lock-in period, the total fund value minus the surrender charges will be given to you. But premature closure of child education plan can be fraught with risks and you may not achieve the stated aim. Invest 4G plan allows you partial withdrawals without surrendering the policy, which essentially disincentivises premature closure of the policy.

Child education plans come with flexible payout options. You can either set up a standing instruction for instalment payment when you buy the policy or inform the insurance company during the policy tenure. Insurance companies generally accept requests for instalment payment a few months before the maturity.

One of the defining features of child education policies is the partial withdrawal facility. Most insurance companies allow partial withdrawal from child education plans to take care of liquidity needs. Invest 4G plan allows partial withdrawal after the 5th policy year.

You can avail a secured loan against a child education plan. The loan can be used to fund the higher education of the child.

Child education plans are like child insurance plans with some slight differences. Child education plans have relatively shorter tenures than child insurance plans. Child education plans have milestone payments coinciding with the educational stages of the child. These plans have a limited scope and are not dynamic products like child insurance plans.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

Child education plan not just secures the financial future of the child but also provides tax benefits to the policyholder. The premiums paid for child education plan are eligible for tax deduction under Section 80C of the Income Tax Act. The maturity amount is also tax-exempt under Section 10(10D) of the income tax law.

While there are several child plans in the market, the Invest 4G plan is the best of the lot. Invest 4G with its unique proposition provides all-round protection to your child. With the online ULIP plan , you can decide the premium payment tenure and also the settlement option.

You can invest in a number of financial products for your child’s education. If you need a long-term savings instrument, the PPF is an eligible option. But if the child’s education is the sole aim of your investment, nothing is better than a market-linked scheme. Market-linked investments, especially equity investments tend to perform better in the long run. Investment in market-linked schemes can ensure handsome returns on your savings by the time your child grows up. Opt for Invest 4G plan to give your child a secure educational future.

Getting insurance required a visit to the bank or the insurer’s branch earlier. But with the popularity of online ULIP plans, getting an insurance plan has become extremely easy. You can buy a host of insurance products directly from www.canarahsbclife.com and get discounts on the premium from the company.

While the cost of insurance depends on a host of factors such as tenure, coverage and the mode of payment. With Invest 4G plan, you can start investing for the financial future of your child with just Rs 5,000 every month. However, if you are not clear about the cost of insurance for your child, you can use the ‘life insurance calculator’ in the ‘tools and calculator’ section of www.canarahsbclife.com. Similarly, you can use the ‘child education planning calculator’ to get an idea of the cost of child education plans.

Considering the flexibility in the premium payment tenure and the payout settlement, Invest 4G is the best scheme for the child. The Invest 4G plan also provides the premium funding option which ensures the financial stability of the child even in the absence of the policyholder.

To choose the ideal child insurance plan, you will have to start with planning the various stages of the plan and your child-specific milestone payments.

  • Paying capability: Just investing in a child insurance plan is not enough, you will have to pay the premiums regularly and timely to keep the policy active. Make a correct estimate of your paying capability and decide the premium payment frequency.
  • External factors: While buying a child insurance plan, consider the external factors such as inflation and interest rates before finalising the maturity benefit.
  • Premium waiver: The premium funding facility is a crucial feature for the success of the child insurance plan. Not having the premium waiver facility can leave a costly chink in your child insurance armour.

To choose the ideal child insurance plan, you will have to start with planning the various stages of the plan and your child-specific milestone payments.

Having life insurance has become a necessity and the earlier you buy one the better. Life insurance plans are cheaper when you are young. Moreover, when you are buying products such as ULIPs that have an investment component, having a long policy tenure helps in compounding your savings.

Most insurance companies have started offering online policies. You can either pay through offline mediums or opt for online ULIP plans. Buying insurance policies online is cheaper and hassle-free. The premiums can easily be paid through the website or mobile app.

There are three major rider benefits provided with child insurance plans.

  • Premium waiver benefit
  • Accidental death and disability cover
  • Critical illness cover
  • The frequency of the payout is decided by the policyholder while buying the insurance plan. Even if you fail to define the frequency of the payout while buying the policy, it can easily be rectified during the policy term.

    You can appoint a minor as nominee for your plan, but you will have to nominate an appointee who will have to give his/her consent to act as an appointee. The appointee will cease to hold power once the minor nominees become majors. In the event of a claim, of your nominee is minor and you did not name an appointee, the proceeds will go to the legal heirs.

    No child should give up on his/her dreams to study in premier institutes like IIT and IIM due to financial constraints. With the rising cost of higher education, investing in a child plan has become extremely important. Child plans help you save in a disciplined way for a secure financial future of your child.

    Canara HSBC Oriental Bank of Commerce offers a plethora of child plans to take care of varied needs. With unique features such as fund switching, premium redirection, change in sum assured and return of mortality charges, child plans from Canara HSBC provide unprecedented coverage.

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