A primer on child insurance plans in India

Posted by Jenny Dsouza on February 16th, 2017

Investing and saving for your children’s future is considered one of the most important financial goals by parents in India in their overall financial planning. The bundle of joy brings you a lot of responsibility and if you play your cards well, your child plans can have a happy future.

Children insurance plans in India can help you save money for your children’s future goals like education and marriage. Let’s check how they work.

What are child insurance plans ?

child plans in India are regular life insurance policies that are designed in such a way that they meet the needs of your children financially when the need arises. The need arises according to the goal based investing strategy you have adopted so make sure the maturity happens in the year the goal materializes.

Such products help you save money regularly over a period of time.  The money is invested to grow over a period of time and the insurers payout a lump-sum when the maturity happens. At the same time they also provide a cover on death.

Note that such plans can be purchased on the life of any of the parent and you can make the child as the nominee.

How do they work ?

The most important benefit in child plans is a clause built in that if you, the parent were to meet with an unfortunate event, your child’s needs would still be taken care of. So essentially the child insurance plan is able to provide a life cover for the financial needs of your children. In a layman’s term, on death of the parent, a lump-sum money is paid out to the child.

You will love to read this too  Can you trust your life insurance company to pay your death claim ?

And now for the best feature of child plans in India which no other product has – the child insurance plan will continue till maturity after the death of the parent and all the future premiums will be paid out by the insurance company ! This unique feature is called Waiver of Premium.

On maturity, a guaranteed lump-sum of money is paid out. So the payout happens at two stages – once on the death of the parent and another on maturity. There are some child insurance plans that will give payouts at regular intervals as well. The idea here is to make funds available when your child needs it, be it for marriage or education.

What is very important to have in a child plans is the waiver of premium rider available. Make sure you have it. In the event of death of the parent or disability, future premiums will be paid by the insurance company.

There are many fund options available to the investor – from conservative to aggressive. So a child ULIP plan allows you to invest your money 100% into equity to become aggressive and 100% into debt to become very conservative. You could choose any of the fund options that the insurer provides to you and even switch between these funds.

Returns from such child plans are always better as they take advantage of long term investing. Pick the child plan which suits your risk profile.

In both types of plans, if the parent dies, the life cover value is immediately paid out by the insurer to the nominee and all future premiums are paid by the them and not by the family. At the end of the policy period, the family would get an equal amount of live cover along with bonus in case of endowment plans and the final market linked fund value in case of ULIPs.

At maturity, in both types of plans, the final amount if paid out to the parent and it is up to the parent to utilize this for his child.

Source: http://www.thewealthwisher.com/2011/09/15/a-primer-on-child-insurance-plans-in-india/