Child insurance is a life insurance policy that financially protects a child in the event of the death of a parent. The proceeds from a child's insurance policy can be used to pay for the child's education, living expenses, or any other expenses that may arise in the child's life.
case of the policyholder’s unfortunate, untimely demise, the child will be paid the death benefit after the policy term. What’s more, the policy will continue to remain in force and all future premiums would be paid by the insurance company. At the end of the policy term, the child would receive the maturity amount.
Then what is a deferment period in a child insurance plan? Let us understand about it in detail.
What is Deferment Period in Child Insurance?
Deferment period is the time frame from the inception of the policy till the child becomes the policyholder or owner of the policy. Parents make payments on the policy during this period to invest for the child’s future. After the deferment period is over, you will be able to receive benefits from the child insurance policy.
When you avail of a child insurance policy, you become the policyholder or owner and your child gets covered under it. However, when your child turns 18, they become the owner of the policy. The time gap between the date of buying the insurance policy and the date when the child takes ownership of the policy is called the deferment period.
For example, if you buy a child insurance policy when your child is 10 years old, the deferment period will be 8 years.
How does a Deferment Period Work?
Child insurance policies have two stages, one covering the period from the date of commencement of the policy to the Deferred Date (called deferment period) and the other covering the period from the date of deferment to the date of maturity. The insurance coverage on the life of the child starts from the date of deferment and is available during the latter period.
- The first stage is the deferment period: The deferment period refers to the duration from when the policy commences to the time when the child turns 18.
- The second stage is the insurance period: The duration of time from when the child becomes the owner of the policy - at age 18 - to the date of maturity of the policy.
What if you Surrender the Policy Within the Deferment Period?
Generally, you are allowed to surrender the child insurance policy after completing three years. The guaranteed value on surrendering before the deferred date is:
- 90% of the paid premiums excluding the premiums that are paid for the first year
- Accumulated fund value in the case of unit-linked child plans
You may also lose any accrued guaranteed bonuses in part or in full, depending on how long you have invested in the policy. Unit-linked child plans, like Invest 4G, usually need five years of continuous investment to acquire a surrender value. Guaranteed child insurance plans require you to invest for a minimum of three years.
Should you buy Child Insurance with a Deferment Period?
The answer to the question depends on several factors. If you are the sole breadwinner of your family and are looking for a life insurance cover for your child, then you must opt for a child insurance plan with a deferment period. The deferment period option is beneficial as it protects your family financially in case of your untimely death.
The deferment period is only one part of a child insurance plan. There are some additional benefits that you are eligible to get:
Maturity Benefit :It includes the sum assured and accrued bonuses that are declared at the time of the maturity of the policy. It is paid out in lump sum to you or your nominee.
Death Benefit :Nominees or beneficiaries get a death benefit if the policyholder dies after the completion of the deferment period.
Tax Benefits :Premiums for a child insurance policy are exempt from the tax under section 80C of the Indian Income Tax Act, 1961. The amount paid to you on maturity is also tax-exempt under section 10D.
There are many reasons why buying a child insurance policy is a good idea. It provides financial protection for your child in the event of your death. If something were to happen to you, your child would be taken care of financially. Another reason is it can help your child pay for their education. If you pass away, the child's insurance policy would pay for their higher education. But factor in all points, including the deferment period that can impact you while buying a child insurance policy.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.