Why Should You Have a Child Insurance Plan?

bySurobhi BoseLast Updated: August 17, 2022
Benefits of Having Child Insurance Plan
Benefits of Having Child Insurance Plan

Every parent wants to secure the financial future of their children. Upbringing a child is the utmost priority for every parent. Thus, it is imperative to start planning for the child’s future right from the beginning and start allocating funds through a disciplined savings habit to create a financial cushion. A child insurance plan is a one-stop solution to secure the future of the child and ensure that all his/her future needs are taken care of.

Let’s read this article further to know why you should have a child insurance plan to provide the right financial protection to the children.

Create financial corpus for child’s education

In this day and age, it is imperative to have a financial backup for the children which cannot be overlooked. A child insurance policy helps to create a financial corpus for the child and accumulate funds to take care of their future needs. Moreover, a child insurance policy also takes care of the educational expenses without any financial burden or stress. The amount of sum assured offered by the child insurance policy depends on the premium amount paid towards the policy and the terms and conditions of the plan.

Support the child in the absence of parents

An eventuality can strike anyone anytime and the unfortunate demise of parents can have an adverse effect on the child, both financially and emotionally. With a child insurance plan, the parents can ensure the financial safety of the child even in their absence. In case of the unfortunate death of parents during the policy tenure, the insurance company offers the benefit of a premium waiver wherein the entire premium of the policy is waived off for the rest of the policy tenure and the benefits of the plan remain to be in force.

Act as a medical emergency fund for the child

The child insurance policy also offers the option to withdraw funds between the tenure of the policy. The withdrawal amount can be used for the medical treatment of the child in case he/she falls ill. Partial withdrawal can be used when the child is hospitalized due to an ailment, minor accident, or a serious medical condition. Moreover, a child insurance plan also reduces the financial burden that may result due to any medical emergencies.

Premium waiver benefit

Premium waiver benefit comes as an inbuilt benefit in most child insurance plans. However, if it does not come inbuilt then the policyholder can opt for this rider as add-on cover along with the base plan. Under this rider option, the future premium of the policy is waived off in case the policyholder dies during the tenure of the policy. The benefits offered by the policy continue till the end of the policy.

Act as a savings fund

A child insurance plan not only provides financial protection to the child against eventualities but also acts as a savings fund for the child. On maturity of the policy, a lump-sum amount is paid to the beneficiary of the policy (child) by the insurer, which can be used to fulfill various requirements of the marriage, child education, etc.

Act as a security for loan for Higher Education

With the burgeoning education cost in India, higher education is very expensive whether one wants to send his/her children to university, private college in India or abroad. International studies are significantly more expensive. Thus, to ensure that the higher education cost of the child is covered, it is crucial to have a child education plan. With a child plan, one can secure a loan for higher education, and the benefits offered by a child plan can be used as collateral for the loan. As a lucrative option of investment for a child’s financial planning, the child plan not only takes care of the higher education but also helps to initiate the habit of disciplined savings to secure the future of the child.

Let’s see how child plans are beneficial with the help of an example-

If an individual purchases a child insurance plan of 15 years at the age of 32, the maturity amount can be a bit low as compared to the other options; however, it will cover the untimely demise of the life assured.

Child PlanTerm Plan + mutual fund comboOrdinary ULIP
Insurance CoverRs.45 lakhRs.45 lakhRs.45 lakh
Premium Per YearRs.1.2 lakhRs.6,000Rs 1.2 Lakh
Mortality Charges Over Full TenureRs.2.45 lakhRs.90,000Rs.1.52 lakh
Death BenefitRs.45 lakh is paid to the insured’s family on the death of the insured. The premium of the policy is waived off and on maturity, the child receives the fund value.The beneficiary receives the sum assured of Rs.45 lakh or the fund value whichever is higherThe beneficiary receives the sum assured of Rs.45 lakh or the fund value whichever is higher
In case of demise of insured person after 5 yearsRs.63.4 lakhRs.52 lakhRs.45 lakh
In case of demise of insured person after 10 yearsRs.66.9 lakhRs.64 lakhRs.45 lakh
Maturity BenefitRs.31.1 lakhRs.37.8 lakhRs. 33.25 lakh

*The computation assumes a 10% return for all 3 investments; the death benefit of the child plan includes a payment of lump-sum Rs.45 lakh and the future premium of the policy is waived off for the rest of the policy tenure.

Income Protection for Child

Some of the child insurance policies provide regular income to the child, in case the parent is not around to pay the premium. The regular income is in the form of 1% of the sum assured amount.

Partial Withdrawal to Enhance the Child’s Talent

If a child has any special talent like acting, playing instruments, art, etc., then the parent can encourage their children to pursue it further and make a career in it by making a partial withdrawal from the child insurance policy. Moreover, some of the policies also offer the option of periodic pay-outs that can be used to meet the expenses that might arise while pursuing the child’s talent further.

The Bottom Line!

Creating a strong financial cushion for the child’s future is extremely important and the child insurance plan helps to create the right financial backup for the child. It doesn’t matter how much an individual starts saving; the objective should be to start saving as early as possible so that he/she can ensure a profitable return in the long term.

What makes the child plan special?
The child insurance plan comes with an inbuilt premium waiver benefit, which ensures that the child has continuous financial protection even in the absence of the parents.
What are the tax benefits offered by the child insurance policy?
The policyholder can save on taxes in the premium paid towards the policy and maturity proceeds under sections 80C and 10(10D) of the Income Tax Act.
What are the types of child insurance plans available in the market?
There are two different types of child insurance plans available in the market. The first is a savings plan and the second is an investment plan.

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