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10 Myths about Child Insurance Plan

dateKnowledge Centre Team dateMay 06, 2021 views217 Views
10 Myths about Child Insurance Plan

A child insurance plan is your gift for your child’s future. It is your piggy bank that you carefully grow over the years to help your child realize his/her dreams and aspirations. The child’s dreams may not be limited to just education and career but also interesting hobbies and ideas, that, if nurtured, could even change the world. An insurance plan is a comprehensive financial investment that supports you at all important milestones in life. But often a child insurance plan is misunderstood, and the real benefits get ignored. Busting these commonly believed myths is essential so that all parents avail the benefits of these policies.

Myth #1: Only Offers Insurance Cover for the Child

Any insurance plan covers the income-earning person and so is the case with a child insurance plan. The policy ensures that a child’s dreams and aspirations are never let down even in the absence of the income-earning parent.

Also, you can use the policy for other financial goals as well, such as weal accumulation and retirement goals. For such goals, the policy will benefit your surviving partner in case of your early demise. Thus, the policy always covers the parent holding or buying the policy.

Myth #2: Only Beneficial When the Child gets Enrolled for Higher Studies

You are free to use the money for anything. No conditions. This myth is prevalent because most parents buy the best child education plan to support their child’s higher education goal. Thus, the policy term is such that you get a lump sum amount when your child turns 18. This is the time when s/he would join University for undergraduate studies.

Professional degree programs, global education are costlier than schooling and hence the need for a systematic investment that will grow your money over time. However, you may decide to use the money for your child’s hobbies, entrepreneurial ideas, or even marriage.

Myth #3: Policy Terminates if the Policyholder Passes Away

The reality is that it’s your choice. You can select the option at the time of purchase itself if you want the plan to continue and meet the financial goal. If you have selected this option, which is also called the “Premium Protection option,” the policy will continue to receive further investments from the insurer.

Thus, in case of the untimely demise of the parent (policyholder), the family would get the Sum Assured and the policy would continue. Future premium payments would be waived off. At the end of the policy period, the family would get the fund value.

Myth #4: It may not be Able to Meet Education Costs in the Future Due to Inflation

You have a choice of child plans where you can also invest in equity funds. Equity is a high-risk high-reward investment capable of beating inflation with long-term investment. Thus, you need the following two factors, to enjoy the growth with relative safety:

1. Manage your portfolio automatically

2. Option to systematically switch to a safer fund near the maturity of the plan

Some of the best child plans, including Invest 4G from Canara HSBC Oriental Bank of Commerce Life Insurance, offer both these options, as well as others to help the growth of your portfolio.

As the policy nears maturity, an automatic safety switch ensures funds are parked in relatively safer instruments such as bonds, G-secs, etc. This meticulous planning ensures your money not only beats inflation but also significantly grows over time.

Myth #5: Death Benefit is Provided Only in Lump Sum

Milestone-based pay-outs and partial withdrawals are allowed even after the untimely demise of the parent. The Sum Assured is paid immediately after the demise. Future premium payments are waived off to avoid burdening the family. At the end of the term, the family would receive the fund value.

Myth #6: Claims of the Policies are Often Rejected

Insurers such as Canara HSBC Oriental Bank of Commerce Life Insurance have a settlement record of greater than 97.1%. Check for settlement ratios, customer service reviews, and defined timelines before signing up for child life insurance plans in India.



Myth #7: Terms & Conditions of the Policy are Difficult to Understand

If you need clarity on some points or want someone to explain the entire policy, in detail, your insurance advisor will be more than happy to take you through each of the features and benefits. You can also reach the nearest branch or customer care department for better understanding.

Myth #8: One can only Avail Benefits after the End of the Plan

This is YOUR decision. You can opt for milestone-based pay-outs or do partial withdrawals (subject to the availability of some minimum defined fund value). The best policy for child education, Canara HSBC Oriental Bank of Commerce Life Insurance, offers Money Back Advantage Plan to suit individual lifestyles and aspirations at various life stages. You may have planned to upgrade your car in 5 (five) years or go on your dream vacation in 7 (seven) years. The Money Back Advantage Plan is designed to pay out a % of the sum assured at predefined stages.

Myth #9: Useful only for Covering Education Costs

There is no such pre-condition. You may use it to fund your child’s entrepreneurial venture or pay for his fitness training. A child insurance plan is associated with education because the investment beats inflation in the long run, provides corpus fund in case of the parent’s demise, and continues support until the end of the policy period.

Learn 4 benefits of getting a life insurance coverage for your child.

Myth #10: Child Plans Lack Liquidity

Child plans are more liquid as they offer flexible withdrawals. You can withdraw the money from the child plan after completing five years of investment. This lock-in period is mandated by the regulators due to the tax-saving nature of the plan.

You can either opt for periodic cash inflows or a lumpsum corpus amount to be paid at the end of the payment term. This can be typically when your child turns 18 or starts University education. For example, in the Invest 4G Plan offered by Canara HSBC Oriental Bank of Commerce Life Insurance, if your child is 5 years old, you can opt to pay premiums for, say, 10 policy years, i.e., until your child attains 15 years of age. From the age of 18 years onwards, you can opt to receive annual pay-outs that can help finance his/her education.

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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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