4 Things About Child Insurance Plan you Should Know

The future of your children is always the number one priority for you as a parent. And you must plan well in advance so that your children can have a bright and prosperous future. As we know, there are many types of insurance policies available on the market today that protect us from financial burden and are vital in our financial planning. One such type of plan is the child insurance plan. A child insurance plan is nothing but an excellent tool that can help you raise funds and secure your child’s future. Let us take a closer look at child insurance plans.

A child insurance plan is a plan that combines the benefits of a life insurance plan and the advantages of investment. It is a mixed plan that helps you, as a parent, build a significant corpus for your child’s future financial needs, like education, marriage etc; while at the same it acts as a life cover that provides a death benefit for your child in case the insured parent passes away.Basically, you pay regular premiums towards the child plan, and when the policy reaches its maturity date, you can withdraw the entire accumulated corpus and use it for your child’s college fees or marriage expenses. You can also opt for regular payouts instead of lump sum payment. Also, the insurance aspect of a child plan ensures that if the insured parent passes away, then the child is paid a certain amount.One of the biggest advantages of a child plan is that it helps in paying for your child’s education. As we know, the cost of education in India has been increasing as the years pass by. An estimated Rs. 2 lakh is required for primary education alone, while secondary education can cost more than Rs. 5 lakh. These are significant numbers and every parent must plan way in advance about how they can help get their child the best education.

There are many aspects of a child plan that you must know before you make a decision. Let us take a look at the four important things that you must be clear about.

A child insurance plan offers a wide range of benefits for the betterment of your child’s future. Find out all the benefits and choose a plan that has the benefits you’re looking for.The following are the benefits of a child plan:

• Create a fund for your child A child insurance plan enables you to create a corpus of your child. As your child grows older, they’ll require significant financial assistance at every turn. Primary education, secondary education, graduation, marriage, training to hone particular skills in sports, music etc. All this requires quite a good deal of money and can be very difficult to pay without proper financial planning. With a child plan, however, you can easily pay these expenses because you’ve been building a corpus to achieve these very goals for your child.
• Financial support in the absence of parent(s) The life insurance benefit of a child plan makes sure that in case the insured parent passes away, the child is eligible to receive a pre-decided death benefit amount. This ensures that the child gets the required assistance in the absence of their parents. Also, if your child plan has the premium waiver rider, then after the death of the parent, the balance premium payments are waived off for the child plan and are paid by the insurer. The child can still collect the maturity amount after the policy has reached maturity.
• Partial withdrawals In case of a medical emergency, a partial withdrawal can be made on a child insurance plan. A partial withdrawal can also be used to pay for music lessons, sports training and other talent development for you child.

Child insurance plans come in two main forms: A Child Unit Linked Insurance Plan(ULIP) or a Child Endowment Plan.

• Child ULIPs A Child ULIP basically works the same way a regular ULIP plan does. Part of the paid premium is invested in debt funds while the rest is invested in equities. The policyholder is free to choose how they want to invest their funds.
• Child Endowment Plan The premium amount is invested only in debt instruments and the choice of funds is decided entirely by the insurance company.

A child life insurance plan may offer you two types of payouts. You can either opt for a lump sum payout that entitles you to withdraw the entire corpus once your policy reaches the maturity date. The other option is to go for regular payments. In this case, you are paid the maturity amount in installments at regular intervals.The lump sum option works well when you need to make large payments for your child, like paying for higher education or marriage. Regular payments, on the other hand, works better if you want to make smaller payments like annual tuition fees, fees for swimming classes, dance lessons etc.

• Ensure that the sum assured is enough for paying education expenses in the future. Education costs are increasing rapidly, and you have to make the right prediction of the cost of education when your child requires it in the future.
• The premium-waiver feature is a must and you should choose a plan that includes this. This feature allows for the remaining premium to be waived of in case of the policyholder’s demise.

Thus, a child insurance plan is an essential part of securing your child’s future . By combining the benefits of a life insurance policy with the corpus-creating advantage of investment in various financial instruments, a child plan can be a diverse financial tool. Find the best plans, keep the above points in mind and ensure a fruitful future for your child.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.