One of the numerous clichéd scenes of the Bollywood movies of yesteryears is this: A dying parent on deathbed telling the eldest child to take care of the other children like they were his/her own. This popular trope of Hindi cinema reflected the society at the time. Even if the parents weren't dead, the elder sibling was always responsible for the upkeep of the younger ones.
Times have changed. Nowadays, couples plan a small family early on and strive to secure the future of their kids as well as they can. This is where a child plan comes in. Child plans are basically a hybrid of insurance and investment. Firstly, in the event of the death of a parent, the child gets a sum assured like a term plan. It also builds a corpus for the child's needs in the future such as education and marriage.
Education is a costly affair today right from schooling to post-graduation. With many different avenues springing up and kids being exposed to them early on, a child education plan has become a necessity to ensure that they can pursue their dreams without any roadblocks. These plans are generally short term with quarterly or annual payouts when the investment attains maturity. If one starts a child education plan early as when the kid is in preschool, then the expenses of primary education are covered. Similarly, if you start when the kid is in secondary school, then the maturity amount would be available during higher education.
A child insurance plan has a longer time horizon. One can start these plans even before the birth of a child. The maturity tenure is set at a much later date and the risks arising from the untimely demise of a parent is covered. The benefit of a child insurance plan is that the child can continue his/her education in the absence of a parent and also if a parent loses their job because of a permanent disability.
Hence, the primary difference between the two kinds of plans is this: a child insurance plan seeks to secure multiple aspects of the child's future such as education, wedding, cost of living etc in the absence of a parent whereas the child education plan takes care of the cost of schooling and college only.
Most child plans in the market offer returns around 10-12%. Since inflation is generally in single digits, these plans are better value creators in contrast to bank deposits that offer interest in the range of 4-7%. Their returns beat government schemes such as the Sukanya Sam Riddhi Yojana, a savings instrument to secure the girl child's future.
In addition, child plans generally promise a lump sum payout of more than 100% of the premiums paid in the event of death of a parent. In some cases, 50% of the sum assured could be paid immediately while remaining benefits continue accruing.
There are also certain child endowment plans in the market which allow partial withdrawals to help finance the child educational and other needs from time to time. A child education plan can also be leveraged as collateral for education loans, which are very low interest debts. Moreover, these plans allow for substantial tax exemptions.
The Smart Junior Plan by Canara HSBC Oriental Bank of Commerce Life Insurance is a best of both world's plan — it promises guaranteed payouts during the last 5 years of policy (provided premiums are paid when due) which can be designed to be concurrent with a child's educational milestones. In case of death, the child gets a life insurance protection through a lump sum payment. Moreover, all the remaining premiums don't have to be paid and the guaranteed annual payouts continue to meet the child's education goals.The policy term for the Smart Junior Plan ranges from 12 years to 25 years and there's no upper limit on the maximum sum assured offered, subject to board approved underwriting policy.
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