Child plans are customized to meet the child’s growing educational need, social and economic need to a certain extent. Insurance basically is a safeguard against unforeseen circumstances. If one is looking for return on investment, one can always go for fixed deposits, Mutual Funds, and Bonds. For these one requires a certified financial planner.
For example, for a 2 year old child, the following plans may seem suitable: Kotak Head Start Children Plan – ULIP, HDFC SL Young Super Premium- ULIP, and the Canara and HSBC Future Smart Plan.
Need for Child Plans
Child insurance Plans are the best way to invest in one’s child’s future. The parents can continue paying fixed amounts at regular intervals to attain a lump sum amount for their child after a fixed period of time. Plans can be purchased as soon as the children are born. It acts as a safeguard against any emergency circumstances, which may require a huge sum for investment, for example, marriage, further higher studies, and setting up an enterprise.
Characteristics of a Child Plan
The amount of Premium and the mode of payment: Depending on the sum assured and maturity amount one wish to get out of a policy the premium, i.e. the amount of money that has to be invested yearly/ quarterly/ monthly/ or at one time.
Sum Assured: The rule generally followed is to choose a plan which will give a return on investment which will be ten times the present salary or income of any person.
Term or Tenure of the Policy: This means the number of years and months the policy will lie dormant, without any return on investment.
Maturity Amount: Here one has to sit with his or her Financial Advisor to find out the lump sum amount that will be payable by the Insurance company to the policy holder at the end of 5 years or at one go at the time of cessation of the duration of the policy.
Waiver of Premium: This refers to Raiders available with certain policies, which act as a safeguard against the sudden demise of the investor in the plan, so that the amount remaining to be paid, can be passed on to the waiver plans for subsequent payment of premiums.
Partial Withdrawals: This may become necessary to meet rising expenses for the child. Here the parent or parents are allowed to take out certain amount from the matured amount mid policy term instead of waiting for the policy to end its full tenure.
Riders and Benefit: Theseare the frills that make the policy stand out from the normal one due to its aggrandizing features, both financial and qualitative.
- Premium Waiver Benefit
- Accidental Death Benefit
- Disability Benefit
- Critical Illness Rider Benefit
Guidelines for Purchasing Plans
- It is always good to buy a plan for your child as early as possible. This ensures a substantial return on investment at the time of maturity.
- If one wishes for a short time plan, for example, for ten years, it is favorable to opt for Endowment Plans.
- For a long term plan that is for more than 10 years, it is best to opt for ULIP’s, or Unit Linked Insurance Plans.
- The return on ULIP’s are comparably more compared to Traditional Plans.
- But here again, it all depends on one’s investment appetite.
The Child Plans in India
Inflation rate and time of Return on Investment are crucial when choosing plans for one’s child.
Some Child Centric Insurance Policies:
- LIC Marriage Endowment or Educational Annuity Plan: Here one gets the sum assured plus accrued bonuses which are paid on maturity. This is ensured even if death occurs midterm.
- Existing optional benefits that can be added to the main policy.
- This is a plan with profit and this includes profits of LIC.
- One can get tax benefit under 80 c and Section 10 (10 D)
- Child Advantage Plan of Kodak Life Insurance.
- Jeevan Anurag Policy of LIC.
- Child Plan of Reliance Life Insurance.
Child Insurance Plans Come in Two Groups
- Traditional Insurance Plans or well known as Endowment Plans, where the payout is guaranteed at the end of the tenure of the selected plan,
- ULIP is a high risk category where a fraction of the deposited premiums are reinvested in Equity Funds/ Debt Funds and other financial groups which are held to return a higher return over long periods of time.
Child Plans are a combination of investment and insurance.The parent is the Policy holder on behalf of the child who is a minor, and on the completion of 18 years of age the money is passed on to the child. The Insurance Company in this case is the insurer of the amount invested and the maturity amount at the end of the Policy year.
