As a parent, you must have dreamed of your kids fulfilling their aspirations, such as becoming a doctor, pilot, astronaut, or sports star. Of course, these high-flying needs require a lot of effort, hard work, dedication, and most importantly, timely availability of funds. No matter how much savings you have accumulated you still need something additional to help your children accomplish their endeavours.
If you wish to get an adequate amount of funds necessary for the higher studies for your children, you need to channelize your savings into the right plan. Getting a child education plan is the most feasible way you can multiply your savings for the future needs of your little whiz kids.
Thus, a term insurance plan will ensure your family’s financial health, while a child plan will ensure a future for your children.
What is a Child Insurance Plan?
Child Education Plans are a type of life insurance plan that serves the dual motive of providing you with a life cover as well as multiplying your savings. You get a handsome maturity amount for your children’s educational needs at the end of the plan.
Hence, a child insurance plan is a kind of investment cum insurance plan that ensures financial security to fulfil your child’s long-term educational goals. You can utilize the maturity value of a child insurance plan to spend on various goals such as sending your ward abroad for higher studies, or his/her marriage.
Different Types of Child Insurance Plans
Before we look at how child plans work we need to know the different child plan options you have. The majority of child education plans fall into three different categories given below:
I. Endowment Child Plans
If you aim to earn guaranteed savings to arrange for your child’s long-term needs, an endowment plan is the safest option for you. Endowment child plans offer the dual advantage of a life cover as well as a safe investment option. The most important aspect of such a plan is that you get a certain maturity value after the policy term ends in addition to guaranteed accrued bonuses.
II. Money-back Child Plans
As a very foresighted guardian of your kids, you may wish to receive certain funds at successive stages of your children’s life. Here comes the role of the money-back child education plan. Such a plan will provide you with fixed instalments of your aggregate sum assured at consistent intervals say 5 years in the form of cash backs.
III. Child Education Plan – ULIP
ULIP child plans are ideal if you aim to reap high growth benefits with more flexibility of your investment portfolio. ULIPs are purely investment-oriented plans that offer you the choice to decide how much risk you want to take on your money. Here, you can select the portfolio ratio among equity, debt, mutual funds, and hybrid funds. What’s more, you can further readjust your portfolio using the unique auto-rebalancing strategy.
This way, you can manipulate all the market speculations to your utmost financial gains. Hence, it’s a truly investor-friendly plan. Moreover, the ULIP child plan will offer you loyalty bonuses for your long-term continuation with your policy. All the gains from a ULIP plan are tax-exempt unless the annual premium goes beyond Rs 2.5 lakhs.
How do Child Insurance Plans Work?
To understand how the child education plans work to secure the future of your children, you need to focus on the following features of your child education plan:
I. Premium Payment
In an endowment plan, you can pay the regular premium, single lump-sum premium, or limited premium payments according to the premium payment term chosen by you. You can also choose to pay a premium in monthly, yearly, or half-yearly terms.
Similarly, in a ULIP, you have the option to pay a lump sum premium or periodic premium. However, if you choose to pay the premium in a lump sum, your premium shall be taxable, as there is a limit of tax-free annual premium payment of up to Rs 2.5 lakhs.
II. Premium Allocation to Different Funds & Investments
In the case of endowment and money back plans, the premium is bifurcated into protection premium and investment premium. While protection premium is paid for your life cover, the investment premium is paid at the maturity of the policy.
In the case of a ULIP, the protection premium gets eliminated if your fund value exceeds your gross death benefit. Your life cover will terminate at this point, and your investment premium will continue.
III. Maturity Benefits
On the basis of the type of child insurance plan you have taken, you will get different types of maturity benefits:
1. Endowment Plans give you a certain maturity value when your policy ends along with the guaranteed accrued bonuses. These include participating bonuses as well as loyalty bonuses that will be paid to you for your long-term continuance in the policy.
2. A Moneyback Child Plan also offers bonuses along with the maturity value, but these are not guaranteed bonuses. However, the benefit of a money-back child plan is that it gives you regular pay outs of your sum assured in the form of cash back.
3. On the other hand, a ULIP can offer you multiple investment options where you can invest and grow your money at a higher compounding rate. You can invest easily in equity funds and automatically manage your portfolio. Investing for more than 10 years in equity funds in a ULIP can add good value to your portfolio if you manage your risk well. You can even rearrange your portfolio as per your choice.
a. Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G is a ULIP plan that offers complete freedom to investors to allocate funds in various portfolios. Additionally, it offers three cover options for different life stages of your child.
b. However, if you want to grow your savings at a steady pace, the Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Savings Plan would be a better option for you.
IV. What Happens on the Death of a Policyholder?
Undoubtedly, any child insurance plan offers you a certain maturity amount at the end of the policy. However, there is an important thing you might be missing out on. In case of your early demise, an ordinary plan will only ensure that your family receives the sum assured, and with that, the policy will stop. Now, what makes a child’s plan different from an ordinary plan is that it has a unique feature called the Premium Protection option.
Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Savings Plan comes with this unique Premium Protection option.
A. In case of your early demise, if you have chosen to leave the option of Premium Protection in your child’s plan, your policy will terminate on your demise. Your family will receive the death benefit.
B. However, if your child insurance plan has the premium protection option
- The insurance entity shall provide your family with the guaranteed death benefit; and
- They will pay all the outstanding premiums till your policy matures.
- At the end of the term of your policy, your family shall receive the maturity amount.
This way, the Premium Protection option ensures that your policy continues even when you are not around and your child receives the much-needed funds for his/her education.
V. Can You Withdraw Money Before Maturity?
Yes, you can partially withdraw from your child insurance plan. There are different rules for partial withdrawal in different types of policies:
- In an Endowment Child Education plan, you can opt for systematic withdrawal from your policy in the final few policy years.
- If you buy the Canara HSBC Oriental Bank of Commerce Life Insurance Money Back Advantage Plan, you will get regular pay-outs of 15% of the assured amount at the end of the 5th, 9th &13th years of the policy. Finally, at policy maturity, you will get a guaranteed lump sum amounting to 55% of your sum assured in addition to your accrued bonuses at simple rates.
- In the case of a ULIP Child plan, you can easily opt for systematic withdrawal from the policy with all accumulated investment corpus, but only upon completion of at least 5 years of the policy term. This withdrawal shall be tax-free, offering you the flexibility to withdraw at any time.
These are the key features that make your child insurance plan work effectively for the accomplishment of your child’s long-term goals.