A wise mom once said "Your child will keep building castles in the air; you better start buying bricks for the castle today."
Loving your child is what comes naturally but as a responsible parent you have certain obligations towards your child. Getting a Child Plan is one such obligation, might we add the most important one.
If you are reading this, you’ve already proved that you are a concerned parent finding ways to secure your child’s future. Let us help you out in understanding what exactly a Child Plan is and how to go about it.
Child Plan is insurance cum investment plan that serves 2 purposes –
- To financially secure your child’s future
- To finance the turning points in his life such as higher education and marriage
So, like a double-edged sword, a Child Plan protects the future of your child in case of your unfortunate demise and at the same time, builds a corpus over a term to be utilized to finance the prime moments in his life like higher education and marriage.
Child Education Plan
Child Education Plan gives you various benefits such as life cover, building a corpus for the child's future needs and the option of adding specific riders. Go ahead and invest in an Education Plan, but always compare quotes before you finally sign on the dotted line.
How is it different from a Term Plan?
|In case the Policy Holder dies
||Death Benefit Paid Policy Ends
||Death Benefit Paid Policy Continues Rest of the Premium Paid by Insurer
|In case the Policy Holder survives
||No Maturity Benefit
Do you really need a Child Plan?
Yes, you do!
Here’s why - at the present rate of inflation, the ever soaring cost of education worry us all. Today, a typical MBA course from a top business school can cost anything between 5-8 lakh. Taking into account the present inflation rate, the education cost will only rise in the future.
So, 10 years from now if your child gets keen to pursue MBA, you’ll need to get him at least 25 lakh for the same. Apparently, the cost will be unbearable until you start planning for your child’s education today. That’s where Child Plan comes as a savior of the day and helps you out.
Features and Flexibilities of a Typical Child Plan
Work out the detailed specifications of the needs you are looking to fulfill through a Child Plan. Here are the key parameters you should look for-
Premium Amount – It more or less depends on the Sum Assured and Maturity Amount you choose.
Mode of Premium Payment -
- Regular premium – As the name implies, the premium is paid on a regular basis. This can be yearly, half yearly or even quarterly.
- Single premium – The premium is paid as a single payment.
Sum Assured -The thumb rule to follow is that the Sum Assured should be around 10 times your present income.
Policy Term - An ideal Policy Term for a Child Plan is the time you think your child needs to get on his feet. If your child is 10 years old, your policy term should be 8 years.
Maturity Amount - Sit with your financial advisor and taking into account the inflation rate and other such factors, work out a Maturity Amount that you would require at the end of the Policy Term. Maturity Amount can be received as a lump sum or in a frequent period of 5 years.
Waiver of Premium – This is a kind of rider that comes inbuilt in Child Plans. However, if this is not a part of the policy, it is always advisable to opt for the same. In case of death of the insured, this rider enables the policy to continue by passing off the financial burden to pay the rest of the premium to the insurer.
Partial Withdrawals - Some parents prefer withdrawing chunks of Maturity Amount at pre-fixed intervals instead of getting a lump sum amount at one go. The intention to opt for this feature is to meet the financial needs of your kid at the key moments in his life.
Riders and Benefits – These are the add-ons that make your coverage financially and qualitatively more valuable -
- Premium Waiver Benefit
- Accidental Death and Disability Benefit
- Critical Illness Rider Benefit
Types of Child Plans – Take your pick
Child ULIPs – A fraction of the premium flows into debt instruments and the rest into equity instruments. The decision of switching between the funds remains in the hands of the insured. Since it’s a market linked plan, the return is decided by the net value of the assets at the maturity period.
Child Endowment Plans - The premium flows into debt instruments, the decision of which is at the discretion of the insurance company. Return is decided by the bonus payable on maturity.
A Word of Caution
It is very important to choose a trusted appointee for your child plan. An appointee should be someone who shares a deep relationship with you and can be counted on to take care of your child in your absence. An unfortunate eventuality passes on the claim amount to the appointee who takes care of the child, till the child becomes capable of handling the money himself. If the appointee turns out to be cunning or careless, it thickens the chance of the money getting spent on anything but the child or being exhausted till the child reaches at an age he needs the most. So always be double sure before you choose an appointee for the policy.
A Case Scenario
Mr. Ketan buys a Child Plan for his 8 year old kid with a policy term of 10 years, aiming to get a maturity benefit of Rs 20,00,000. He opts for a life cover of Rs 25,00,000. He suffered a heart attack after 4 years the policy began. The insurer is liable to pay the appointee a sum of Rs 25,00,000 and also to borne the premium to be paid for the rest of the policy term left i.e 6 years. The child will also get the maturity benefit of Rs 20,00,000 once he reaches the age of 18 years. The same has been illustrated:
- Start early – Buying a Child Plan earlier will enable you to collect the corpus for a longer term, thus adding substance to your Maturity Amount.
- For a shorter policy term i.e <10 years, prefer Child Endowment Plans.
- For a longer policy term i.e >10 years, prefer Child ULIPs.
- Investment Gurus suggest that for a Child ULIP, the focus should be on equity instruments for the initial periods of the policy term to tap the maximum market profits and as the policy term reached its end, the funds should be transferred to debt instruments to stabilize the profits thus made.
Let Us Help You
At Policy Bazaar we take pride in helping parents like you to ensure a brighter future for their children. Every child is unique and so are his insurance needs. Who knows, your children might turn out to be future Einsteins or Tendulkars. Make sure you financially equip your child to tap the opportunity when it knocks.
There are many variants of Child Plans as per your budget and needs, thus it is always advisable to compare insurance quotes from various insurers. An online comparison makes it easy for you to match quotes with your specific needs and go for the best plan.