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Everything you Should Know About Child Insurance Plans

dateKnowledge Centre Team dateMay 06, 2021 views217 Views
Everything you Should Know About Child Insurance Plans

Being a parent, it is natural to be concerned about your child’s education, future, and general well-being. You have your aspirations regarding the quality of life that you want to give to your child. Then there are dreams about their success in their chosen career path. This thought process also leads you to think about the money required to make all this happen. And, perhaps also, what if you cannot be there to support it all?

Hoping for the best and planning for the worst is the right way to deal with any situation in life. There may be challenges in other areas, but for your child’s education, there is a child insurance plan to support them in all circumstances.

Child Plan Benefits Things to Check While Buying Buying the Best Child Plan
Build for child's future Pay-out options Premium waiver for emergencies
Support even in your absence Maturity benefits Your risk appetite
Partial Withdrawals Add-on covers Tax-benefits
Loan facility Cash value factors

What is a Child Insurance Plan and How Does it Work?

The foremost objective of any child education plan is to provide a predictable, regular stream of cash inflow when the child goes for undergraduate or postgraduate studies. Another key objective is to provide financial support even when the parent is not around. The child’s education should not be impacted for want of money.

For example, Future Smart plan offered by Canara HSBC Oriental Bank of Commerce Life Insurance is a comprehensive plan ensuring your child’s education is not affected by any mishaps in the future. The money is invested in high-quality funds and the allocation is regularly observed and rotated by experienced fund managers. As the policy nears maturity, an automatic safety switch ensures funds are parked in relatively safer instruments such as bonds, G-secs, etc.

In case of unfortunate, untimely demise or disability, the company pays the sum assured to your nominees immediately, but the policy continues. The insurer will keep investing until all the due premiums are paid and your child will receive the money you originally intended for her/him at maturity.

4 Benefits of Buying a Child Plan

1. Create a Fund for your Child’s Future

Evaluate your financial goals and start investing a fixed amount each year from now by exploring the best child education plan in India. 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.

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.

Learn why Invest 4G is one the best investment option for your child.

2. Financial Support in the Absence of Parents

This is the most comforting feature of availing life insurance plan in India. In case of the parent’s unfortunate, untimely demise, the child will receive the sum assured. The investment part of the policy will, however, continue with future premiums paid by the insurance company. Most child insurance plans offer a sum assured that is at least 10 times the annual premium. At maturity, the fund value will also be paid.

3. Partial Withdrawals

This flexibility is one of the most appreciated features of an insurance policy and draws parallels to the humble savings account. Contingency expenses are unpredictable. Say, due to the sudden shift to online classes, you have to buy a new laptop for your child. Top insurance plans permit partial withdrawals to manage such unexpected expenses.

4. Loan Facility to Cover Unforeseen Expenses

All expenses can neither be predicted nor estimated. For example, if a portion of your house gets damaged due to harsh weather conditions, you may have to quickly fix the problem. In another scenario, medical emergencies may cost money that is beyond the scope and limit of your current medical plan.

If you require a big amount as a lump sum to tide over such temporary setbacks in life, plans such as Jeevan Nivesh offer a loan facility at reasonable rates of interest.

4 Things to Consider While Buying a Child Insurance Plan

Once you are convinced about the benefits of signing up for a bright future for your child, you must mull over some points while exploring child plans:

i. Pay-out Option

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.

ii. Maturity Benefits

What are the additional benefits at the end of the policy period? Does the plan offer loyalty and guaranteed annual additions? In some plans such as Invest 4G - Care Option, even the nominee gets the fund value on maturity despite already receiving the sum assured in case of untimely demise. Check these finer features when you explore maturity benefits.

iii. Option to Add Riders

In medical emergencies, several indirect, incidental expenses cannot be classified as medical. Riders on policies often offer fixed lumpsum pay-outs for accidents or defined critical illnesses. This amount is irrespective of the actual expense incurred.

ULIPs for planning your retirement

iv. Collateral for Loans

Higher education is costly and more so if your child aspires to study in global private 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 collateral. Insurance policies can be placed as collateral for such loans.

3 Tips to Buy the Best Child Plan

While signing up for a child insurance plan, keep these tips handy:

a. Premium Waiver Benefit

The best insurers waive off future premiums in case of untimely demise or severe disability. The policy continues in both cases and the nominee gets the fund value at the end of the policy period.

b. Invest as Per Risk Appetite

You know that your investment growth is directly proportional to the investment risk. Your financial goals, your lifestyle aspirations, and your ability to invest are unique to you. Thus, the best child plan for you will be the one that gives you the freedom to invest as per your risk appetite.

For example, a child plan with the option of both equity and debt funds.

c. Tax Benefits

Most child plans allow tax savings immediately on investment of up to Rs. 1.5 lakhs in a financial year under section 80C. The withdrawals and maturity proceeds from these policies are also tax-free. However, you should check while investing if that will be the case with the child plan you have selected.

Learn how child insurance plans can offer tax relief.

When is the Best Time to Buy the Child Insurance Plan?

The best time to buy a child insurance plan is upon the birth of your child. However, if you missed it, you should try to start as soon as possible. So, the second-best time would be now.

Signing up for a Child Insurance Plan needs some detailed comparative analysis because after all, you are dealing with 2 (two) lives. Your decisions will have a long-term impact on your finances as well as the well-being of your family.

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