Life insurance companies offer child insurance plans that provide financial security for your child's dreams and goals. In addition to providing a safety cushion for your child's corpus in case of your untimely death, you can use a child insurance policy to invest in the big life goals of your child, such as higher education and marriage. During your lifetime, if you pass away before fulfilling the goal, the plan can invest the money on your behalf and give your child the maturity amount you intended. In this sense, child insurance plans are part of a broader family of child-specific financial products that also includes child education plans. A child insurance plan combines insurance and investment products to ensure your child's financial security. Generally, child insurance plans are customizable with options to add riders to enhance the plan based on the specific needs of your child. Life insurance plans pay out a lump sum at the end of the policy term.
Why Must You Have A Child Plan?
It is every parent's desire to ensure the financial future of their children. Every parent's top priority is raising their children. So, it is imperative to create a financial cushion for the child right from the start by allocating funds and developing a disciplined savings habit. Child insurance is a one-stop solution to ensure the future of a child and meet all of his/her future needs.
1. Fund a child's education by creating a financial corpus - Nowadays, it is imperative to have a financial backup for the children, which cannot be overlooked. Investing in a child insurance policy builds a financial corpus for the child and accumulates funds for their future needs. Furthermore, a child insurance policy also covers educational expenses without any financial burden or stress. Child insurance policies offer different sums assured depending on the number of premiums paid and the terms and conditions of the plan.
2. Provide support to the child if the parents are absent - Any eventuality can strike anyone at any time, and the unfortunate passing of parents can have an adverse effect on a child on both a financial and emotional level. Even in the absence of the parents, a child insurance policy can ensure the child's financial security. In the event of the death of parents during the policy tenure, the insurance company offers the benefit of a premium waiver in which the entire premium is waived off, and the benefits of the policy remain in effect.
3. Assist the child with medical emergencies - There is also the option of withdrawing funds between the term and tenure of the child's insurance policy. It might be possible to use the withdrawal amount for the child's medical treatment in case he or she becomes ill. A partial withdrawal can be used when the child is hospitalized due to an illness, a minor accident, or a serious medical condition. In addition, child insurance reduces the financial burden that may result from medical emergencies.
4. Waiver of premiums - Most child insurance plans include a premium waiver benefit. Nevertheless, policyholders can choose to add this rider over the base plan if it doesn't come inbuilt. By purchasing this rider option, the policyholder can waive the future premiums in case of death during the term of the policy. It is possible to continue receiving benefits from the policy until the end of the term.
5. Assist in saving - Besides providing financial protection for the child, child insurance plans also serve as savings funds for the child. Insurers pay a lump-sum amount to the policy beneficiary (child) on maturity, which can be used to fulfill various requirements such as marriage and education.
6. Assist in securing higher education loans - In India, higher education has become very expensive regardless of whether one wants to send his/her children to university or a private college. There is a significant difference in cost between international studies and domestic studies. Child education plans are therefore essential for covering the child's higher education costs. One can secure a loan for higher education using a child plan, and the plan's benefits can serve as collateral on the loan. In addition to taking care of the child's higher education, the child plan also helps to establish a habit of disciplined savings to ensure the child's future.
Benefits of Child Insurance Plan
Investing in a financial plan for your child will ensure that he or she is financially supported at every milestone. Specifically designed for children, child insurance plans cover their financial needs. It is therefore recommended that you invest in a child plan in order to help your child achieve all his or her life goals. The full scope of child insurance policies must be understood before you opt for one. A child insurance plan offers the following benefits:
1. Protection from financial harm - Your income provides your child with all the comforts and security he or she needs. A child plan acts as a safety net if an unfortunate event causes financial support to cease. Upon death, the policy provides a lump sum payout. The amount specified when you buy the policy can cover your child's needs during their growing years.
2. Life insurance and investment component - There is also an investment component to child insurance plans. With ULIP child plans, you can leverage the capital market's potential for high returns According to the Ministry of Statistics and Programme Implementation, India's inflation rate averaged 6.05% between 2012 and 2020. It is evident from such data that investing in equities can provide inflation-beating returns. A ULIP bridges the gap between such tax-saving investments and your investment objectives The risk-bearing capacity of your portfolio can also be taken into account when selecting your investments, whether you choose equities, bonds, or hybrid funds. Market volatility is minimized by such diversification. It is also possible to switch to another fund that performs better if your current fund fails to deliver expected returns.
3. The maturity amount is a lump sum - The child policy, however, also offers a unique feature. The plan remains active even if an unwanted event occurs and the insurer pays the benefit. All future premiums are waived by the insurance provider. Until maturity, the funds continue to grow. Your child receives the maturity proceeds when they are ready for college admission or other life-stage events that require funds Compared to direct investments in mutual funds, this feature is a distinct advantage. The direct method stops further investments if an unforeseen incident occurs. Your child's insurer invests on your behalf if you have a child insurance plan. Due to these plans, your child's growth cannot be hindered by exigencies. At the end of the policy term, the child plans to offer a lump sum payout as maturity benefits. The maturity date can be chosen in accordance with your child's future needs for funds. Your investment grows into a substantial corpus that can finance your child's dreams.
4. Partially withdrawn funds - You can withdraw a part of your funds from ULIP child plans in case your child has an urgent need. You can cash out some of your units after the lock-in phase if you need to pay for school fees or sudden medical expenses.
5. Benefits of taxation - Plans for children are life insurance policies. As a result, the premiums qualify for tax benefits. Your child's insurance premiums can be deducted up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. Also, the payouts are exempt under Section 10(10D). Taxes will not erode the funds of your child through this facility.
Features of Child Insurance Plan
No matter what you believe about the future, you should stay financially prepared. Children are especially vulnerable to the uncertainties of the future and the financial stress they can cause. Life insurance and investment are the only solutions. When you are alive, your investments will grow, but if you cannot be there for your children, insurance will take care of their goals. There is, however, much more that should be included in the best childcare plans. India's child plan has five unique features:
1. Long-term investment options that are appropriate - A child's ideal investment plan should offer appropriate long-term and short-term investment options. The risk-return profile of each investment option or asset class is unique. A specific time is required for each investment to provide the best return based on its risk-return profile. As a result, an ideal child plan will offer a long-term investment option or asset class, such as equity funds. Your accumulated funds will need to be parked in safer investment options as you get closer to your goal. To keep your funds safe, the child plan should also include a fixed income or debt fund option. You can create a suitable mix of these asset classes as per your time-to-goal with the best child plan that offers all these asset classes.
2. Feature of goal protection - As we've already mentioned, insurance is an essential component of a good child's future. There is, however, more to life insurance than simply providing a lump sum amount when a parent dies. In order to achieve the goal of higher education and becoming independent, the child must have insurance for the goal. This is exactly what goal protection does. When this option is included in your child's plan, your family not only receives the life cover amount but also the investment. In the event of maturity, the plan will be paid to the child at the maturity value. It's amazing to know that the insurer will deposit all remaining installments between the death claim and maturity, as you would have done. You will ensure that your child receives the amount you intended for her at maturity.
3. Managing risks automatically - It is possible to take a little more risk and get a higher growth rate when investing for the long-term, i.e. 5 years or more. In the plan, for example, you allocate a larger portion of your total investment to equity growth funds. Volatility will increase with a higher equity allocation. It is impossible to spend a great deal of time managing your investments, so you need automated portfolio strategies to keep your portfolio up-to-date.
There are a few proven portfolio management strategies that the best child plans will include, such as:
- Option for the systematic transfer - Provides rupee cost averaging by systematically transferring your lump-sum investment to equity funds.
- Rebalancing of funds automatically - Your portfolio is automatically rebalanced between equity and debt based on market performance. The money will move from the equity fund to the debt fund until the balance is back to 50:50 if the equity market performs well and the ratio becomes 40:60 (debt: equity).
- The safety switch option is available - You should gradually transfer all your equity funds to the debt over the last four years of your plan. In this way, you keep the funds accumulated from equity safe as your plan matures.
4. Partial withdrawals are tax-free - Higher education goals are often gradual climbs that involve multiple milestones instead of a singular destination. All of these milestones should be covered in the best child plan without causing you more headaches. It is important to find a child plan that allows you to withdraw from the accumulated corpus without being taxed or affecting your investment. Such child plans allow you to make multiple partial withdrawals and continue investing. With a child plan, you can also invest in your child's higher education and marriage goals at the same time.
5. Expenses associated with management are lower - Investment products with features like automatic portfolio management, life insurance, and goal protection seem expensive. It's actually the opposite.
Types of Child Insurance Plans
There are different types of child insurance plans available in India:
1. ULIP for children - A child ULIP offers three benefits, including high insurance coverage, regular investments, and equity market participation. As a result of these benefits, the nominee child will be entitled to receive the sum assured if the parent or legal guardian dies. Furthermore, the future premium payments will be waived on the death of the parent, and the maturity value will be paid at maturity. The market determines the maturity payouts, so the plan makes sense for long-term investments like 10-15 years. To make sure you get more money than you invested, firms offer ULIP plans with different investment options.
2. Endowment plans for children - The insurance company decides what debt products to put your investments into based on your investments. Because there is very little risk involved with such investments, they provide guaranteed security for your money. As a result of these insurance plans, you are able to earn a stable return on your investment by receiving bonuses over the amount of the policy sum assured. On traditional insurance plans, bonuses are generally distributed after the second year. Nevertheless, you can check whether a reversionary bonus will be compounded or calculated in simple interest if it is released in cash.
3. Child Premium Plan - Each individual's financial situation differs, which is why many parents may not be able to pay an annual premium all at once. In this way, they can continue their plan without interruption. Parents are required to pay the premiums monthly, quarterly, or half-yearly, depending on their income and convenience. People prefer such premium payment cycles due to their lower amount and several benefits individualized to their schedules.
4. Plan with a single premium for children - Parents can pay for the entire policy term in lump sum amounts and no longer worry about remembering the premium due dates with these plans. You can also avoid the hassle of arranging finances for regular premium payments with a single premium plan. On top of that, some insurance companies offer attractive discounts or reduce the premium amount for child insurance plans.
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List of child insurance companies
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Max Life
Insurance
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Hdfc Life
Insurance
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Tata Aia
Life Insurance
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ICICI
Prudential Life Insurance
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BAJAJ
ALLIANZ LIFE INSURANCE
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LIC
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Exclusions of Child Insurance Plans
Under certain circumstances, the insurance company does not provide coverage for death. Exclusions are what these are called. The following is a list of child plan exclusions.
- Self-harm or suicide - Upon suicide within one year of taking the policy, the nominee does not receive any claim amount
- Sports that are adventurous or risky - In the event that the policyholder knowingly participates in these sports, such as racing, rock climbing, skydiving, etc. Any claim that results in death is not entertained by the insurer.
- Abuse of alcohol or drugs - A nominee does not receive any benefits if the insured dies from an alcohol or drug overdose.
- Driving under the influence of drugs or alcohol causes an accident - The policyholder cannot receive any benefits if he or she dies in an accident while under the influence of alcohol or drugs.
- Activities related to crime - The benefit of any claim is void if any illegal activity, war, or criminal activity led to death.
Why Should You Invest In Child Insurance Plans?
It is inevitable that parents will experience joy. Parenting is all about nurturing a child and ensuring their well-being. Every responsible parent must have a child insurance plan in their kitty to ensure the bright future of their children. The following are key reasons why a child insurance plan is important:
1. Education of Children - Education is one of the most important and basic needs of a child. A child's chances of success increase as he or she becomes more educated. The educational costs, however, can be quite high. Education costs will be covered by the child insurance plan. Motivate the child to achieve their dreams by letting them dream big. A child's passionate dreams should not be hindered by the lack of money. A child insurance plan creates a fund that a child can access at the right time.
2. Corpus of wealth - Eventually, the child will become an adult and plan to get married. Throughout the child's life, the child's insurance plan will cover all important stages. Make sure the child's happiness is not hindered by money. A parent may want to give their child a two-wheeler or a four-wheeler from time to time. Having the means to account for such expenses becomes essential. One of the best things you can do for your child is to create a corpus. A child insurance plan is therefore an essential part of a child's financial planning.
3. Providing the Right Example of Responsibility - Setting the right examples for children is always important. Setting the right example is the best way to teach a child. It is easy for young minds to be influenced. Children mostly emulate their parents' behavior and learn from them. In the future, the decisions made by the parents will have a great impact on the child. Do not be rash or reckless when it comes to the child. It is wise to purchase a child insurance policy. The child will also make informed decisions when he or she becomes a parent in the future.
Things To Consider Before Buying Child Insurance Plans
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Things to consider
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Explanation
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The ratio of
claims settled
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An
insurance company's claim settlement ratio (CSR) measures how efficiently it
pays off claims. The higher the claim settlement ratio (CSR), the more claims
the insurer pays out. You should choose an insurance company with a high CSR.
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The
coverage
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The amount
of coverage you receive depends on various factors, such as your age, income,
and lifestyle habits. To ensure your child's financial future, you must
choose a child insurance plan that offers maximum coverage at affordable
premiums based on the available coverage amount.
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Term of
the policy
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Choosing
the longest possible policy tenure for your child plan will maximize its
benefits. Through the child plan, you can ensure that your child is
adequately protected financially. Compare different child insurance plans
before choosing the one with the longest policy term.
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Benefits
for add-on riders
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There are
many insurance companies that offer riders as add-ons to their child coverage
plans. Riders provide additional coverage, over and above the base policy benefits,
for specific life events, such as accidental disability and death, and
critical illness diagnosis.
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Benefits
of maturity
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Upon
maturity, a child insurance policy will pay you a substantial sum accumulated
over the policy's tenure. When choosing a child plan, make sure it offers
maximum maturity benefits for the premium you are paying.
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Eligibility Criteria To Buy Child Insurance Plans
The eligibility or terms and conditions of child insurance plans vary from company to company:
1. New Children's Money Back Plan of LIC - This policy requires a minimum entry age of right after birth, while the maximum entry age is 12 years old. This policy has no minimum maturity age, but it has a maximum maturity age of 25 years. The payment of the premium can be made on a yearly basis, a monthly basis, a half-yearly basis, and a quarterly basis. The premium can be paid in 7 installments, 10 installments, or 5 installments. Under this policy, the minimum Sum Assured requirement is Rs. 1 lakh, while the maximum Sum Assured requirement is unlimited.
2. HDFC Life YoungStar Udaan - You must be at least 30 days old to purchase this policy, and you must be at least 60 years old to buy this policy. Under this policy, the minimum maturity age is 18 years, while the maximum maturity age is 75 years. Depending on the mode of payment, premiums can be paid annually, monthly, half-yearly, or quarterly. A maximum policy term of 25 years is available with a minimum term of 15 years.
3. ICICI Pru Smart Kid Solution - A minimum Entry Age of 20 years is required under this policy and a maximum Entry Age of 54 years. A minimum maturity age of 30 years and a maximum maturity age of 64 years are required. Paying the premium can be done on a monthly, annual, or half-yearly basis. There is a minimum policy term of 10 years and a maximum policy term of 24 years. A parent's minimum entry age is 20 years, while their maximum entry age is 60 years.
4. Max Life Future Genius Education Plan - This policy requires a minimum entry age of 21 years and a maximum entry age of 45 years. Policyholders are required to reach maturity at 66 years of age. A premium payment can be made annually, monthly, half-yearly, or quarterly. There is a choice of 13 to 21-year terms for policyholders.
Documents Required For Child Insurance Plans
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Documents required
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Explanation
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Certificate
of birth
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Birth
certificates contain information such as a person's name, gender, date of
birth, place of birth, and parent's names and addresses. Within 21 days of
your child's birth, you must obtain this mandatory document. Applications for
school admissions, passports, Aadhaar cards, minor bank accounts, etc.,
require it. Undocumented orphans and adopted children can also receive certificates
under special provisions.
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Identification
card based on Aadhaar
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Every
application today requires an Aadhaar. The procedure is simplified for
children under five years old without the need for biometrics. You will be
able to link your child's Aadhaar card with yours if your child is under five
years old. Your child's photograph is captured along with your biometric
information. During registration, your child's original birth certificate
must be presented.
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The
passport
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As proof
of citizenship, identity, and address, a passport is a very important
document. Passport Seva is the official website where you can apply for a
child's passport. Once your application is complete, you will be given an
appointment. You will be required to bring a list of documents. Minors'
passports are valid for five years or until they turn 18 years old, whichever
comes first. A passport that is valid until the age of 18 may be applied for
by minors between 15 and 18 years of age instead of a passport that is valid
until they turn 18.
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Records of
vaccinations
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From the
time a child is born until a certain age, he or she is required to receive a
set of vaccinations. Make sure you keep a record of all the vaccinations your
child receives over the years. The pediatrician or children's hospital will
give you a card that contains all information regarding your child's
vaccinations, including dates and types.
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Insurance
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To
continue coverage, you must add your child to your policy within the first 30
days. You can also purchase a new policy for your child. Term insurance and
life insurance are both options. Make sure you compare policies and find one
that fits your needs and those of your child. Explain to your child where the
documentation is stored once he/she is old enough.
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Details of
your savings
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You need
to inform your child about their bank account details once he or she is old
enough. It is important to explain to them how savings should be done and how
they can increase their savings.
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Certificates
of Medical Fitness
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It is
important to document your child's medical records if he or she has undergone
any medical procedures. Some job applications require them, and some health
check-ups may also require them.
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Nomination
for Guardianship
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A
permanent guardianship form is a document in which you choose who will care
for your children in the event of your incapacity or death. Choosing a
short-term guardian for your child is important, but it is more important to
consider who would raise your child if you were unable to.
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