Child Insurance Plan

A child insurance plan helps you to secure the future of your child by ensuring that his goals are met even if you are not there.

Just like any other insurance plan, a child plan also requires you to pay regular premiums. The premiums you pay are allocated to your chosen funds in the child investment plan. You can choose various modes available to pay your premiums for the child policy. These are:

• Limited Pay Pay for a limited time and enjoy the benefits of the policy
• Single Premium Pay for a lump-sum premium for the whole policy at once.
• Regular Pay Pay regularly depending on periods such as monthly, quarterly, and yearly.

For instance, Ajeet is starting to save for his 5-year-old daughter’s higher education and marriage. He plans to invest ₹ 10,000 monthly in a child savings plan with a life cover of ₹ 12 lakhs, for the next 15 years.

Case 1: If Ajeet survives the policy term

Ajeet will be entitled to receive the maturity benefit from the child savings plan. This is the fund value of the investments he has made into the child plan and any bonuses. Depending on the type of child insurance plan, Ajeet can either receive the lump sum or convert the sum into a regular payout.

Case 2: If Ajeet dies during the policy

If Ajeet does not survive the policy term, then his daughter will receive the death benefit. This will be higher than the sum assured or the fund value at the time of death. If Ajeet had opted for the premium protection benefit, the child investment plan would continue after paying the death benefit. His daughter will receive the maturity value upon the expiry of the plan.

A child insurance plan is a widely available financial product and most insurers offer it with different riders to appeal to a wide variety of customers.

• Child Endowment Plans: Child Endowment Plans offer a safe investment option for your money by offering guaranteed maturity benefits. These child investment plans are best when you know the amount that you will need for the goal.
  Also, with guaranteed benefits and goal protection options, you can be sure to achieve your goal even if you cannot be there for your family.
  Child Endowment plans offer a savings avenue along with a life cover that ensures your financial goals are well-protected even in your absence.

• Child Money-back Plans: Child money-back plans offer a long-term, safe investment option for your child’s future. These plans are ideal for long-term financial goals, such as funding a four-year undergraduate degree.
  
  Child Money-back plans also offer bonuses to aid the growth of your investment. These bonuses add to your plan’s maturity value.
  These are some of the best child plans, as you enjoy the benefit of a life cover while getting a portion of the sum assured at regular intervals.

• Child Savings Plan: Child savings plans are generally ULIPs that give you more freedom as an investor. You can choose the amount of risk you want to take on the invested money. You can also use one or more automated portfolio strategies to benefit from market movements.
  
  Some child plans also offer additional bonuses for long-term investors. You can withdraw money from the accumulated corpus after completing five policy years. Withdrawals are tax-free, so you can at any time after the lock-in period.

1. Life Cover: Life cover is an integral part of most investment plans. A child saving plan also includes a cover on the life of the policyholder. This will protect the child’s dream in case anything happens to the policyholder during the term of the child's policy.
   
2. Goal Protection in case Death or Disability: The child investment plan will continue to invest the due premiums in your child’s goal after your untimely demise. This option ensures that your child can achieve their goal even after your death without having to pay any extra premiums.
   
3. Systematic Withdrawals: Child education plan and endowment plans offer the option of systematic withdrawal or automatic payments from the plan in the final few policy years. This allows your child to meet the financial needs which may arise gradually.
   
4. Bonus Additions: Participating child plans and Unit-Linked Plans offer rewards for staying invested for the long term. While ULIP will add units as loyalty additions and wealth boosters, endowment and money-back child plans accrue annual bonuses. These bonuses are payable with the maturity value of the child's policy.
   
5. Loans & Partial Withdrawals: Child endowment and money-back plans acquire cash value after two years of investment. Thus, in case of emergencies, you can take a loan against the policy without having to break the investment. Child ULIPs, on the other hand, offer partial withdrawals after the five-year lock-in period.
   
6. Riders: Child insurance plans come with a variety of riders. The most prominent add-ons offered with child investment plans are critical illness cover, accidental death cover and the premium waiver option. Some insurers offer the premium waiver option as an in-built feature of the child policy. The critical illness cover protects against a set of terminal diseases, while the accidental death cover provides an additional sum in case of accidental death.
   
7. Choice of Funds: A part of the premium paid for a child investment policy is invested in market-linked assets. The insurance company provides the policyholder with an option to choose from different funds. The funds under the child saving plan invest in equity, debt or money market instruments.
   
8. Premium Waiver Benefit: An important feature of a child insurance plan is the premium waiver benefit. In case the policyholder dies within the stipulated duration, the beneficiary gets the sum assured, and the insurance company continues to pay the remaining premiums till the maturity date.
   
9. Lump Sum Benefit: After your death, the death benefit is provided in a lump sum, i.e., the whole amount in a single payment. 
   
10. Tax Benefits: Child insurance plans offer significant tax benefits under the Indian Income Tax Act, making them a smart financial investment. Premiums paid qualify for deductions up to ₹1.5 lakh under Section 80C, while maturity and death benefits remain tax-free under Section 10(10D). Partial withdrawals from ULIPs, loans against policies, and premium waiver benefits also do not attract taxes. Additionally, riders such as critical illness and accidental death cover may provide deductions under Section 80D. These benefits help secure a child’s future while offering tax savings, ensuring both financial growth and protection.

A child insurance plan secures your child’s future by ensuring that funds for important goals remain available, even during unforeseen circumstances. It helps parents stay financially prepared while supporting long-term aspirations like education and career growth.
 

• Endowment plans: A child insurance plan helps you create a corpus for your child’s needs. Having adequate funds in times of need is critical for your child’s growth. With a premium funding option, your child’s future will be secure even if you meet with an unfortunate incident. Buy an endowment policy as soon as possible to cater to the needs of your child. The best time to buy an endowment plan is now.  Child Endowment Plans offer a savings avenue along with a life cover that ensures your financial goals are well-protected even in your absence.
• Money-back plans:- If you have to save ₹ 12,000 in a year, it is better to save ₹ 1,000 every month rather than ₹ 6,000 in the last two months. A child insurance plan helps you maintain discipline while saving for your child’s future.
• Unit-linked insurance plans:-Children are delicate and often fall ill. Child insurance plans provide an option for partial withdrawal of funds without surrendering the policy. The partial withdrawal facility can be used for the medical treatment of the child.
  A ULIP can help you stay prepared for the unforeseen future in case something happens to you. So, it can be said that ULIP is a good form of investment if you have a resilient financial plan.

The best child education plan for you should be the one that can solve your purpose in the most optimal way possible. Some factors should be considered before you decide to buy a child plan.

• Start Investing Early: Starting early gives your child's savings plan ample time to grow your money. You also get more time to make adjustments and achieve a bigger goal than you initially intended.

• Consider Inflation & High Education Cost: Inflation keeps shifting your goalpost for the child’s plans. However, planning your child plan investments with after-inflation costs would let you catch up to it in the long run.

• Look for Premium Waiver Benefit: The premium waiver benefit allows your child's investment plan to continue without the need for additional premiums. This option comes into force if you suffer from a critical illness or accidental disability which affects your income
  Such emergencies do not allow for death benefits, but they can affect your plans. However, with the premium waiver benefit, you can rest easy, as the child will receive the intended maturity value.

• Consider the Premium Protection Option: If this feature is available in the plan, then the premiums will be taken care of even after you die. The company funds all the premiums that remain to be paid after your death under this option. Thus, the policy continues even after your death, and your child will get the maturity benefit as promised by the company.
  This feature ensures your family does not have to worry about the premiums.

• Check for Partial Withdrawal Option: A partial withdrawal facility allows you to withdraw money from your fund. This comes in handy in the times of emergencies when you are in need of quick cash.
  You should look for a policy that provides you whit the option of partial withdrawals. 

• Option to Add Riders: Riders are the additional benefits offered over and above the policy, which enhance the scope of your existing policy. Riders cover those things that are not covered by the base policy. Some of the most popular riders include the following:
  • Critical illness rider
  • Accidental death benefits rider
  • Accidental total & permanent disability rider

Though some riders are added by default in some policies, some add to the cost of your premium. You should choose the policy with the most available rider options to get the best from your policy.

• Frequency of Premium Payment: There should be multiple options to pay your premium. You must be able to pay as you like. Many policies have the option of limited payment. This means you pay your premiums for a limited time and enjoy the benefits of the policy for a long time.

• Check for Regular Payout Option: The purpose of the child insurance policy is to provide your child with the money, which will help in his education or other goals. This money should be present when needed.

• Consider the Associated Charges in the Policy: This is also an essential factor to consider before buying a policy. The insurance provider levies charges for the maintenance of the policy. Some of the charges associated are:
  • Fund management charges
  • Premium allocation charges
  • Administration charges
  • Switching charges

Choose the policy that has the lowest charges involved.

• Terms & Conditions of the Child Insurance Policy: Understanding the benefits and exclusions of your child's policy allows you to ensure that the policy will be useful in every situation. For example, how much is the regular payment from the plan, which events are covered under the policy, etc?

Before buying a child insurance plan, you must be sure of how much you should invest. Education, as we know, is getting costlier with each passing year. School fees are rising constantly. Also, if you want your child to go for higher education in the field of engineering or medicine etc, then the cost is even more.

Thus, to make sure your child can pursue what they want, your income may not be enough, and you need to invest in a child education plan as well. But how much should you invest?

Well, this depends on the educational course and institution you are targeting. You can plan your monthly savings into the child education plan accordingly.

Here are the steps you should follow to know how much to invest:

• Ascertain the goal you want to achieve
• Estimate the inflation rate at the time the child will attain education age
• Estimate the expected rate of return of the policy.

Education is one area with one of the highest inflation rates. Thus, it becomes even more important to plan for your child’s education as early as you can.

There are certain things in the child insurance policy that are excluded from the policy. This means that these things are not covered and the insurance company will not provide any benefit if death is due to anything that is excluded.

1. Suicide Exclusion: If the death is due to suicide or self-harm. If the death is due to suicide within 12 months of the commencement of the policy, then 80% of the premium paid or surrender value is paid.
   
2. Death Due To Drug Overdose: If you die due to the consumption of drugs that are not prescribed or excessive intake of alcohol, then no death benefit is payable.
   
3. Death Due to War: If you die due to war (declared or not) or any type of civil commotion, your family will not receive the death benefit.
   
4. Hazardous Activities: There are certain adventure sports that pose a risk to life such as sky diving, mountaineering, scuba diving, etc. If you die due to participating in these games then your coverage ceases to exist.
   
5. Taking Part in Criminal Activity: If you die while indulging in any activity that is considered criminal or illegal, then this will also not be covered in your child insurance plan.

Buying a child insurance plan is a crucial financial decision that ensures your child’s future is secure, even in your absence. It requires thorough research and careful planning to select a policy that aligns with your long-term goals. Here’s a step-by-step guide to help you make an informed choice:

1. Assess Your Financial Goals: Before selecting a plan, determine the financial milestones you want to secure for your child. Common goals include funding their higher education, covering medical emergencies, and ensuring financial stability in case of unforeseen circumstances. Estimate the future costs of these expenses, considering inflation, to get a realistic idea of how much coverage you need.
2. Compare Different Plans: Child insurance plans come in various types, including traditional endowment plans, unit-linked insurance plans (ULIPs), and money-back policies. Compare policies based on:
   • Coverage: Look at what financial risks are covered, including death benefits and maturity benefits.
   • Premiums: Assess affordability and premium payment flexibility (monthly, quarterly, or annually).
   • Maturity Benefits: Check how and when the policy pays out benefits, such as lump sums or periodic payouts.
   • Waiver of Premium: Choose a plan that continues even if the policyholder (parent) passes away, ensuring the child still receives the benefits.
3. Consider Flexibility and Investment Options: Some child insurance plans offer investment components that help grow your savings over time. Plans like ULIPs allow you to invest in equity or debt funds based on your risk appetite, while traditional plans provide guaranteed returns. Select a plan that offers flexibility in terms of switching funds, withdrawing funds when needed, and modifying coverage as per changing needs.
4. Understand the Policy Terms and Exclusions: Before making a purchase, read the policy documents carefully to understand all terms and conditions. Pay special attention to exclusions, waiting periods, and conditions for claim settlements. This will help you avoid surprises in the future.
5. Consult a Financial Advisor: If you are unsure which plan is best for your needs, seek professional advice. A financial advisor can help you assess different policies, compare investment returns, and choose the most suitable plan based on your financial situation and future goals.
6. Finalise and Purchase the Policy: Once you have selected the right child insurance plan, complete the paperwork and ensure all details are accurate. Keep a copy of the policy documents and inform a trusted family member about it to facilitate easy access when needed.

By following these steps, you can select a child insurance plan that provides financial protection and security for your child, ensuring their dreams and aspirations are never compromised.

Starting early ensures greater financial stability for your child’s future. By investing in child insurance plans, education savings schemes, and other long-term financial instruments, you can build a strong financial foundation. Early planning provides higher returns, better investment options, and protection against unforeseen circumstances.

1. More Savings Over Time: The earlier you start, the more you can save through compounding benefits and disciplined investments. Early investments allow you to accumulate a significant corpus over time, reducing financial burdens in the future.
   
2. Increased Investment Options and Flexibility: Starting early provides access to a wider range of investment options, from mutual funds to unit-linked insurance plans (ULIPs). It also gives you the flexibility to adjust investments based on market conditions and changing financial goals.
   
3. Secures Your Child’s Future and Reduces Your Stress: A well-planned financial strategy ensures your child’s future needs, such as higher education and healthcare, are covered. This proactive approach reduces financial stress and gives you peace of mind, knowing your child’s future is protected.

A child insurance plan is an investment option designed to serve as a wallet for major life goals of a child. Be it higher education, hobby, or marriage a child insurance plan gives you the benefit of investing, growing and using your money as per your child’s needs.

If you mean to provide for your child’s education goals the plans can work as child education insurance. The plan will help your child achieve the goal even if you cannot be there.

A few more important reasons to get going with a child insurance plan at the earliest are:

• Beat the inflation in higher education costs with investment as per your risk appetite using automated portfolio management options
• Prepare for an unexpected expense with an additional corpus for your child’s goal with bonuses and additional units
• Stop the unfortunate events like death and disability from harming your child’s future and plans
• Face financial emergencies or change of plans with partial withdrawal and loan facility from the plan
• Keep your child’s investment corpus safe from taxes with tax savings while investing and withdrawals