A child insurance plan is your gift for your child’s future. It is your piggy bank that you carefully grow over the years to help your child realize his/her dreams and aspirations. The child’s dreams may not be limited to just education and career but also interesting hobbies and ideas, that, if nurtured, could even change the world. An insurance plan is a comprehensive financial investment that supports you at all important milestones in life. But often a child insurance plan is misunderstood, and the real benefits get ignored. Busting these commonly believed myths is essential so that all parents avail the benefits of these policies.
Myth #1: Only Offers Insurance Cover for the Child
Any insurance plan covers the income-earning person and so is the case with a child insurance plan. The policy ensures that a child’s dreams and aspirations are never let down even in the absence of the income-earning parent.
Also, you can use the policy for other financial goals as well, such as weal accumulation and retirement goals. For such goals, the policy will benefit your surviving partner in case of your early demise. Thus, the policy always covers the parent holding or buying the policy.
Myth #2: Only Beneficial When the Child gets Enrolled for Higher Studies
You are free to use the money for anything. No conditions. This myth is prevalent because most parents buy the best child education plan to support their child’s higher education goal. Thus, the policy term is such that you get a lump sum amount when your child turns 18. This is the time when s/he would join University for undergraduate studies.
Professional degree programs, global education are costlier than schooling and hence the need for a systematic investment that will grow your money over time. However, you may decide to use the money for your child’s hobbies, entrepreneurial ideas, or even marriage.
Myth #3: Policy Terminates if the Policyholder Passes Away
The reality is that it’s your choice. You can select the option at the time of purchase itself if you want the plan to continue and meet the financial goal. If you have selected this option, which is also called the “Premium Protection option,” the policy will continue to receive further investments from the insurer.
Thus, in case of the untimely demise of the parent (policyholder), the family would get the Sum Assured and the policy would continue. Future premium payments would be waived off. At the end of the policy period, the family would get the fund value.
Myth #4: It may not be Able to Meet Education Costs in the Future Due to Inflation
You have a choice of child plans where you can also invest in equity funds. Equity is a high-risk high-reward investment capable of beating inflation with long-term investment. Thus, you need the following two factors, to enjoy the growth with relative safety:
1. Manage your portfolio automatically
2. Option to systematically switch to a safer fund near the maturity of the plan
Some of the best child plans, including Invest 4G from Canara HSBC Oriental Bank of Commerce Life Insurance, offer both these options, as well as others to help the growth of your portfolio.
As the policy nears maturity, an automatic safety switch ensures funds are parked in relatively safer instruments such as bonds, G-secs, etc. This meticulous planning ensures your money not only beats inflation but also significantly grows over time.
Myth #5: Death Benefit is Provided Only in Lump Sum
Milestone-based pay-outs and partial withdrawals are allowed even after the untimely demise of the parent. The Sum Assured is paid immediately after the demise. Future premium payments are waived off to avoid burdening the family. At the end of the term, the family would receive the fund value.
Myth #6: Claims of the Policies are Often Rejected
Insurers such as Canara HSBC Oriental Bank of Commerce Life Insurance have a settlement record of greater than 98%. Check for settlement ratios, customer service reviews, and defined timelines before signing up for child life insurance plans in India.
Myth #7: Terms & Conditions of the Policy are Difficult to Understand
If you need clarity on some points or want someone to explain the entire policy, in detail, your insurance advisor will be more than happy to take you through each of the features and benefits. You can also reach the nearest branch or customer care department for better understanding.
Myth #8: One can only Avail Benefits after the End of the Plan
This is YOUR decision. You can opt for milestone-based pay-outs or do partial withdrawals (subject to the availability of some minimum defined fund value). The best policy for child education, 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.
Myth #9: Useful only for Covering Education Costs
There is no such pre-condition. You may use it to fund your child’s entrepreneurial venture or pay for his fitness training. A child insurance plan is associated with education because the investment beats inflation in the long run, provides corpus fund in case of the parent’s demise, and continues support until the end of the policy period.
Myth #10: Child Plans Lack Liquidity
Child plans are more liquid as they offer flexible withdrawals. You can withdraw the money from the child plan after completing five years of investment. This lock-in period is mandated by the regulators due to the tax-saving nature of the plan.
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.