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Five Tips to Buy the Best Child Insurance Plan

dateKnowledge Centre Team dateApril 30, 2021 views191 Views
Five Tips to Buy the Best Child Insurance Plan

Every parent earns to fulfil the needs of the family and future goals of their children like higher education and marriage, etc. As parents our happiness is tied to the children’s happiness and success in life. This is why you would earn, save and invest a major chunk of your income in long-term financial instruments.

Child saving plans are the best investment cum insurance plans that can ensure the financial security of children’s future goals.

Most insurers are offering child plans with market-linked and pure endowment products. ULIPs are the best investment plan for child education if you are open to investing in both debt and equity funds. Whereas a traditional endowment plan is a better option when you want a specific amount assured at maturity.

Here are five more tips that will help to choose the best child plans as per the child’s future goal:

Tip 1: Invest in Plans that Offer Premium Waiver Benefits

The best child insurance policies have the option for a premium waiver in case of the policyholder’s early death. Plans like Invest 4G ULIP plan and Guaranteed Savings Plan from Canara HSBC Oriental Bank of Commerce Life Insurance offer this feature. This feature allows the child to receive the financial support you intended for her at maturity despite your early demise.

For example, you have bought a ULIP plan with a life cover of Rs. 10 lakhs and an annual premium of Rs. 1 lakh. You want to accumulate Rs. 20 lakhs in 15 years and will be contributing throughout the policy term. But, in case of your demise in the seventh policy year, your family will still receive:

1. The life cover sum assured of Rs. 10 lakhs in the same policy year

2. Maturity value of approximately Rs. 20 lakh, as you intended, upon completion of the policy term of 15 years

This feature is called the premium protection option, and it ensures continuous investments from the insurer into the plan after your demise. Thus, the investment value of the plan keeps growing until maturity.

Tip 2: Choose Equity-linked Plans as per Risk Appetite

If you want to invest in equity funds and benefit from the high-risk high-growth possibility, you need to ensure a few things:

  • You have sufficient time to stay invested in equity: Your goal should be at least 10 years away
  • Invest in equity fund using systematic investment method: Invest in monthly mode, or use the automated allocation strategy to transfer systematically from debt fund to equity fund
  • Make sure your plan has a systematic transfer plan: This will be important in the last few years of your investment when you need to withdraw from equity gradually and safeguard your capital

In case you don’t feel comfortable investing in equity funds, you can still use the safer debt funds option in the ULIP child plans. However, if you are looking for a guaranteed maturity value you can consider an endowment plan.

Read more about ULIP as an investment for your child.

Tip 3: Consider a Simple Endowment Plan

Endowment plans are one of the safest long-term investments. You can easily estimate your maturity value from these plans at the beginning of the investment. So, if you have a financial goal with a definite future value, these plans could be the best option for you.

For example, you want to provide a corpus of Rs. 15 lakhs to your daughter’s marriage 20 years from now. Using an endowment plan like Guaranteed Savings Plan you can decide an investment amount that will lead to that maturity value.

Additionally, these plans provide additional bonuses for long-term investors. So, if you are investing for 30 years, you can expect better growth of your funds than if you invest only for 15.

Tip 4: Estimate Total Sum Assured and Choose a Cover Accordingly

Understand that both of these plans are life insurance plans, and life insurance plays a crucial role in their performance. For instance, both the plans will offer a sum assured of life cover, which your family will receive immediately upon your death within the policy term.

If you need the plan to add to your family’s overall life cover umbrella, the plan’s life cover should be equal to or larger than this amount. Also, the life cover amount in a plan decides how much you can invest in that plan in a financial year without losing the tax benefits.

ULIPs for planning your retirement

For example, if your ULIP plan’s life cover sum assured is Rs. 20 lakhs, your maximum annual investment in the plan should not exceed Rs. 2 lakhs (10% of S.A.).

Tip 5: Check the Premium Payment Terms

The size of the corpus you can build at the maturity of the child plan depends on the following three factors:

  • Amount of money you invest each year
  • Length of time you continue to invest in the plan, i.e., Premium Payment Term
  • Length of time you stay invested in the plan, i.e., Policy Term

Premium payment term cannot exceed the policy term. But it can decide the amount of money you can invest in the plan. Thus, the premium payment term is an important factor to consider if you wish to achieve bigger goals.

Child Plans by Canara HSBC Oriental Bank of Commerce Life Insurance

Invest 4G ULIP plan and Guaranteed Savings Plan are two such plans from Canara HSBC Oriental Bank of Commerce Life Insurance, which offer all these features and more. Both plans offer added growth to long-term investors.

The ULIP plan offers automatic portfolio management strategies for aggressive investors. So that, you can manage your portfolio risk and allocation even when you are not looking into it.

So, if you have enough time on your side, why not give equity a chance to boost your funds over time with the right investment plan.

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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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