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Having a child is the biggest blessing in the life of the parents. On one hand, it is the onset of nurturing life and on the other hand, it is a learning experience of a whole new dimension. The responsibility of the parents begins right at birth and they make every possible effort to provide the best of everything to their child. While it is the love and care of the parents which is of utmost importance, we cannot refute the important role that finances have to play in the growing years of the child. All milestones in a child’s life involve investments and expenses, namely, clothes, toys, travel, education, admissions, and the list goes on. It is, therefore, a sane decision to invest in a child insurance plan which can take care of these expenses at various points or in the case of untimely death or illness of the parents.
What is a Child Plan?
A child plan is a well-strategized combination of insurance and savings to assure the financial security of your child. It creates a financial corpus that can be used for the various financial requirements of the child. A child plan is usually taken for a minor child by a parent and provides both death benefit and maturity benefits. The parent/parents can choose when and how the maturity amount is released to the child by the insurance company. Another important aspect is that the policy stands effective even if the parent faces untimely death before the maturity period and the child receives the amount as decided by the parent.
Thus, in simple terms, a child plan is a savings-oriented life insurance plan which helps in the creation of a secured corpus for the child’s future even if the parent dies.
For example, consider the following scenario –
|Age of the parent who is the insured||40 years|
|Age of the child||5 years|
|Parent buys a child plan with a term of||20 years|
|Sum assured||INR 10 lakhs|
|The premium payable every year||INR 25,000|
The parent dies in the 10th policy year. In the child plan, the benefit payable would be as follows –
|Death benefit||INR 10 lakhs paid on the death of the parent in the 10th policy year|
|Premium waiver benefit||Premiums of the policy would be waived off. The plan would continue undisturbed till the end of the policy tenure|
|Maturity benefit||When the plan matures after 20 years, INR 10 lakhs would be paid to the child as a maturity benefit|
Thus, child plans create a corpus even when the parent is not around so that the child’s future is secured.
Different Types of Child Plans
There have been many changes in the types of child plans in the recent past based on the changing requirements of consumers. Most insurance companies offer a range of policies to suit individual needs. In the broader prospect, child plans can be of the following types:
- Traditional Child Plans
Traditional child plans provide fixed returns with guaranteed maturity and death benefits. The sum assured in such plans also attracts an additional bonus on the policy and hence forms an attractive package. Traditional child plans can come in two variations which are described below:
- Endowment Plans
Endowment plans provide an appreciation of funds through steady returns on investments and provide lump sum benefit on the maturity of the plan or early death.
- Money-back Plans
Money-back plans offer regular payments at specified intervals throughout the tenure of the plan and the remaining sum assured is paid on maturity. In the event of death, these plans pay the total Sum Assured to the policyholder irrespective of the money-back benefits already paid.
- Endowment Plans
- Unit Linked Insurance Plans
Unit-linked Insurance Plan (ULIP) Child Policy is very beneficial in the long run as they yield high returns following the escalating economic growth. These plans are very flexible and provide for partial withdrawals during the tenure and also the benefit of switching to change the investment strategy. Unit-linked child plans provide market-linked returns on your investments to create a substantial corpus for your child’s future.
Benefits of Investing in Child Plans
Investing in a child plan is quite beneficial for the following reasons -
- Future Security:
Child plans help to create a fund for the educational and other needs of the child. The premium waiver benefit ensures the receipt of lump-sum amounts as planned by the policyholder relieving him of any financial burden. This provides great security for the child in the future.
- Income Tax Benefits:
All Child plans enjoy tax benefits on the premiums paid under section 80C and the amount received on maturity is also exempt from taxes under Section 10 (10D) of the Income Tax Act, 1961. These tax benefits allow parents to create a tax-free corpus for their children and also save taxes on their investments.
- Flexibility to Switch:
Unit-linked child plans provide the liberty to choose from the various fund options for investment such as equity, debt, etc. You can, therefore, manage your investments as per your risk profile and investment strategy to create a considerable corpus for your child.
- Inbuilt Premium Waiver Benefit:
Child plans feature a unique benefit that waives the pending premiums in case the parent dies during the tenure of the plan but assures payment benefits as laid down in the policy. This premium waiver benefit provides financial security to the parent knowing that his/her death would not disrupt the financial planning activity for the child’s future.
- Liquidity Benefits:
The partial withdrawal facility of the unit-linked child plans helps to cater to any financial emergencies that may arise thereby providing liquidity. Even endowment plans allow policy loans and money-back plans allow survival benefits for providing liquidity to the policyholder.
- Additional Riders:
In keeping with the coverage needs of parents, child plans offer a host of add-on riders which the policyholder can choose as per his requirement. This increases the scope of coverage as well as the number of claims thereby providing enhanced coverage under the policy.
What is Covered?
All child insurance plans are designed to meet the primary requirement of securing the child’s future. These benefits are available to the child under the following circumstances:
- Maturity Benefit:
When the plan matures, a specified maturity benefit is paid under the plan which can then be used to provide for the child’s financial needs.
- Death Benefit:
In the event of the death of the parent, the premium payable post the death of the parent until the maturity of the plan is waived off. The plan continues till maturity and the maturity benefit is paid as and when promised. If the parent is life insured, in case of death during the policy tenure, a death benefit is paid immediately on the death of the parent.
- Survival benefit:
Survival benefit is paid under money-back child plans. Under such plans, the sum assured is paid in installments at regular intervals during the policy tenure.
What is not Covered?
Certain conditions do not qualify for claim settlement of Child Plans. Some of these are mentioned below:
- Suicide Cases: The plan stands invalid in the case of suicide or any instances of self-harm within 1 year of availing of the policy or renewing it. In such cases, 80% of the premium is refunded if the insured dies due to suicide within a year of buying the policy. If, however, the insured dies within a year after the revival of a lapsed child insurance policy, then the surrender value or 80% of the total premiums paid, whichever is higher, would be paid as a death benefit
- Accident under influence: If the Insured person dies in an accident while under influence of alcohol or drugs, the policy stands invalid
- Adventure Sports: Death of the policyholder while doing adventure sports such as sky diving, rock climbing, etc. also leads to non-payment of the sum assured
- Illegal activity: Claim benefits arising out of death in cases of criminal or illegal activities are not covered under the plans.
What to Consider While Buying a Child Plan?
Child Plans are the most desired insurance plans among modern consumers as the future security of the child is a parent’s priority. All insurance companies are offering the best of policies and it is a daunting task to choose from the wide plethora of child plans in the market today.
The following list of points may assist you to choose the right kind of plan for your child:
- Sum Assured: The Sum Assured depends on factors such as the age of the insured person, income, etc. While comparing the various plans, choose a high sum assured to create a suitable corpus for your child
- Tenure: A plan offering the maximum term for the policy at value for money is the ideal choice. A longer tenure provides financial security for a longer period serving the purpose of the plan to the maximum.
- Benefits on Maturity: Understand the maturity benefit of the plan and find a plan which pays the benefits when you require it. Choose an endowment or ULIP plan for availing of a lump sum benefit on maturity. Alternatively, if you want periodic benefits, go for money back child plans
- Premium Amount: Different Child Plans have different premiums as per the various factors. This may vary even if the Sum Assured and the tenure of the plan are the same. A little vigilance while comparing the different plans may lead to great benefits.
- Additional Benefits and Riders: Most of the plans have benefits and riders to offer at additional costs to make the plan more suitable to individual needs. A rider for one may be a part of the basic plan of the other. Choose the needed riders to avail of comprehensive coverage under the plan
- Claim Settlement Ratio: The claim settlement ratio of a company talks greatly about the credibility and goodwill of the company in settling its claims. Hence, it is advisable to choose an insurer that has a high claim settlement ratio.
Documents Required to Buy a Child Plan
To buy a child plan, the following documents would be required to be submitted –
- Identity proof of the parent and the child
- Age proof of the parent and the child
- Address proof of the parent
- Photographs of the parent and the child
- Proposal form of the child plan, duly filled and signed by the proposer
- Income proof of the parent if the sum assured and/or the premium is high
Child Plan Investment Tips
Child insurance plans provide the right channel of investment for a secured financial future of your child. Detailed knowledge of the plan and a fair inclination of market trends can help you choose the best plan suitable for you. So, when buying a child plan, consider the following points -
- Starting at the Earliest
The main purpose of a Child Plan is to derive maximum benefit on maturity to cater to the financial needs when the child goes for higher education. Starting early enables you to create a substantial corpus. It is advisable to invest in a child plan when the child is born or, maximum, by the age of 5 years of the child for creating a substantial corpus.
2. Consider Escalating Costs
While deciding the amount of the Sum Assured you should consider the rise in costs that may occur in the coming years. As we are aware of the escalating costs in all fields, you must plan your investment with a vision for the financial needs a decade later.
3. Invest in Unit linked plans
Unit linked child plans allow you to create an inflation-adjusted corpus in sync with the growth of the financial markets. These plans, therefore, provide attractive returns over a long-term investment horizon. So, choose unit-linked child plans for creating a suitable corpus for your child.
4. Choice of Fund Allocation
The premiums paid for unit linked child plans are invested in a fund chosen by you. A thorough study of the asset allocation of the chosen fund and market trends will help you to invest your money wisely. These investments are flexible and can also be changed, so it is important to be well informed to choose a suitable fund as per your risk appetite and investment horizon.
5. Terms and Conditions
It is of great importance to read the policy documents with great precision and in detail to understand all the terms and conditions mentioned. Be mindful of choosing the right kind of plan to suit your needs.
Best Child Plans to Invest in 2022
Investing in a Child Insurance Plan is the best gift a parent can give to a child. There are different insurance companies offering different types of child plans for your needs. Before investing in any of these plans you should study all these plans in detail to make the best choice. Mentioned hereunder are some of the plans with their details.
|Name of the Plan||Plan Type||Minimum Age||Maximum Age||Minimum Premium||Sum Assured|
|ICICI Prudential Smart Kid Plan||ULIP||20 Years||54 Years||INR 45,000||10 times of the Annual Premium|
|Max Life Shiksha Plus Super Plan||ULIP||21 Years||50 Years||INR 25,000||10 times of the Annual Premium|
|HDFC SL YoungStar Super Premium||ULIP||18 Years||65 Years||INR 15,000||10 times of the Annual Premium|
|Aegon Life Rising Star Insurance Plan||ULIP||18 Years||48 Years||INR 20,000||Up to 18 times of the annual premium|
|Aviva Young Scholar Secure||Traditional Money Back Plan||21 Years||50 Years||INR 33,000||Depends on the premium and the plan variant selected|
Child Plan Claim Process
Claims under child plans can be maturity claims, survival benefit claims, or death claims. The process is as follows –
- Maturity and survival benefit claims
Survival benefits are paid under money-back plans while other types of child plans pay a maturity benefit. For availing the maturity claim, the process is as follows –
- The insurance company would send a claim discharge voucher before maturity or survival period. Fill up the voucher and submit it to the insurance company along with the policy bond and identity proof
- The insurance company would verify the voucher and the documents submitted and pay the maturity or survival claim
- Death claim
If the insured parent or child dies during the plan tenure, a death claim occurs. The steps for this claim are as follows –
- The nominee should file a death claim by filling the death claim form
- The death certificate should be attached to the form and submitted
- Other documents to be submitted include the identity proof and the bank account details of the nominee as well as the policy bond. In case of accidental death, police FIR or a Medico-Legal Certificate should also be submitted
- The insurance company would verify the claim form and the documents submitted and pay the death claim
3. Child Plan Riders
Child Insurance plans come with some riders which can be availed at the time of buying the policy at an additional premium. These riders enhance the coverage offered by the child plan. Some of the commonly available riders under child plans are as follows -
- Waiver of Premium Rider
This rider enables the continuity of the plan without further payment of installment premiums in the event of the death of the parent. The child is entitled to the Sum Assured as decided by the insured and enjoys all benefits thereunder. This rider is usually inbuilt in a child plan.
- Accidental Disability
In the case of an accident wherein the parent suffers a permanent or partial disability, this rider entitles the child to an additional amount to meet the unforeseen expenses. This amount is as per the sum assured and the terms and conditions of the rider.
- Accidental Death
The accidental death rider gives the child the benefit of an additional amount which is payable if the parent dies as a result of an accident.
- Income Benefit
This rider brings a monthly benefit to the child in the form of 1% of the sum assured under the rider, in the following events:
- Death of the Insured person
- Permanent disability caused to the insured person as a result of an accident
- If the insured person suffers any critical illness as specified in the policy.
- Critical Illness Benefit
This rider comes as a great relief when the parent suffers any critical illness such as a heart attack, Coronary Artery By-pass Graft Surgery (CABG), Cancer, stroke, or kidney failure. An additional sum assured is paid in case the parent suffers from a covered critical illness during the policy tenure.
Child Plan FAQs
1. What is the right time to invest in a Child Plan?
Ideally, one should invest in Child Insurance Plans as soon as the child is born. But you can also buy anytime between 0-15 years of age of your child. It is important to know that the earlier you invest, the higher is the gain %.
2. Is investing in a child plan a good investment option?
Investing in a child plan is a good option if you have a child and if you want to secure the financial future of your child even in your absence.
3. Is income from child plans taxable?
The death benefit received from a child plan is not taxed at all. Maturity benefits and bonuses are also tax-free if your premium was up to 10% of the sum assured when buying the child plan.
4. How much life cover is offered in a child plan?
In traditional child plans, you can choose the life cover that you need depending on which the premium would be calculated. For unit-linked child plans, however, the life cover depends on the premium that you pay. Usually, the sum assured in ULIPs is 10 times the annual premium or 1.25 times the single premium.
5. What are the maturity benefits and death benefits in a child plan?
The maturity and death benefit under child plans depend on the plan that you buy. The benefits are mentioned beforehand and the sum assured is paid in most cases. However, in ULIPs, in case of death, higher of the sum assured or fund value is paid but on maturity, the fund value is paid.
6. Which plan is best for my child’s future?
You can invest in unit-linked child plans to create an inflation-proof corpus for your child’s future which would be secured even in your absence.
7. Which LIC policy is best for my child’s education?
LIC offers two types of child plans. Both are traditional plans and you can choose either one to create a corpus for your child’s education.
8. Which is the best child plan in India?
There are more than twenty insurance companies offering a child plan for your needs. The list of some of the best child plans has been mentioned earlier. You can choose from those plans for your child planning needs.
9. Which is the better investment option – child plan or Sukanya Samriddhi Yojana?
Sukanya Samriddhi Yojana (SSY) is a fixed income investment scheme only for a girl child. Child plans, on the other hand, can be availed for male children as well. Child plans allow premium waiver benefit which is absent in SSY scheme thereby enabling a secured corpus even if the parent dies. Moreover, under unit linked child plans, you can earn attractive returns and create a substantial corpus for the child. Thus, child plans are better.
10. Where to invest in my child’s future: Child plan or PPF?
PPF is a fixed investment avenue with a tenure of 15 years. Though PPF allows you to create a guaranteed corpus, it does not have the premium waiver benefit which promises the creation of a corpus even in the absence of the parent. Moreover, PPF returns might not create a substantial corpus after 15 years. Child plans are better for the premium waiver benefit that they offer and also for the market-linked returns which you can earn through ULIPs.
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