Child Insurance Plan- a product to secure the future of the child, by insuring the life of a parent. Child plan is insurance plan that financially secures your child's future and also serves as an investing tool. It is an insurance plan that helps to build a corpus over time to protect the future of the child and their expenses and also in case if the parents die. It is important to have a disciplined approach of investing and to create a safety net and not to lack in terms of money while providing platform for your child's higher education.
For example, the management course from IIM which cost around Rs20 lakhs today will cost around Rs60 lakhs in next 20 years at 7% assumed inflation. Similarly, a post graduation degree from a reputed foreign business school will cost around Rs50 lakh which will go up to 2 crore in next 20 year at 7% assumed inflation. "We try to make sure that the customer gets the money at the right time when it's needed; also at the same time there is enough time in the policy for the money to grow" says, Rishi Mathur, Head of Products and Strategy, Canara HSBC OBC Life Insurance
Features and benefits
- A child plan comes with multiple benefits, along with the basic maturity benefit. The three main benefits of a child plan are death benefit, waiver of premium and maturity benefit.
- If the policy holder dies in middle of the term period, a sum assured as death benefit is paid by the company. The death benefit is provided either inform of school fees and family income or as a lumpsum amount by some company.
- Also in case if the policyholder dies in the middle of the policy term, the premium is waived off; the family or the surviving parent does not have pay for it. The insurance company pays the rest of the premiums and the policy continues uninterrupted till the end of the policy term and the child also receives the maturity benefit when the term ends.
- Tax benefit is applicable on the amount invested U/S 80C as well the maturity earnings is also tax-free U/S 10 10(D).
Type of Insurance Plans
- Child Insurance Plans available in the market are endowment plan and ULIP. It depends upon the risk appetite of the insured, whether he wants to go for ULIP child insurance plans with market linked returns or endowment/guaranteed child insurance plans which gives comparative lower returns.
- For child education, ULIP is the suitable choice though the returns received in ULIP products in the initial years are normally low. However when staying invested for long-term ULIP' provide higher returns.
Factors to keep in mind
- While planning for a child's expenses it is necessary to make sure that education inflation is taken into the account.
- Both endowment and ULIP child insurance plan generally comes with age criteria, to ensure that pay out happens in a manner that is related to the child's education. It is imperative to decide the time when the fund will be required, which mostly is when the child attains 18 years. "It is essential to understand and calculate how much your current investment would yield at bare minimum interest rate, thus making us take a calculated risk to equip with enough funds for the child's future" says, Rahul Parikh, CEO, Bajaj Capital.
- It is advisable not to invest in endowment plans because of low return of around 5-6% in such policies.