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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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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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