Outline of A Child Protection Plan

What Are the Benefits of a Child Protection Plan?

The premise of a child protection plan is simple - protect the child with financial support in case of any emergency such as the death of a parent. Here are the core benefits you can expect out of child plans - 

• A sum on the death of the parent

• Future premiums for a policy waived off by the insurer

• Final accumulated fund value at maturity

• Monthly income benefit to fund daily needs

These four benefits form the outline of child protection plans. 

Components of a Child Protection Plan

A child protection plan is made of the following components - 

• Policyholder - This is the person who pays the premiums for a child insurance plan on behalf of the kids. 

• Life Assured - Ideally, parents should be the life assured because a child depends on them for survival. So on the death of parents, the child receives the death benefit amount. 

• Beneficiary/Nominee - The child should be named the nominee so that they receive the benefits out of the child plan. In cases where the child is a minor, it would be advisable to name a trusted person to take of the finances of the child.

• Sum Assured - This is the amount that the policyholder decides as the guaranteed base sum to be offered to the child on the death of a parent or maturity of the policy. 

• Annual Premium - This is the premium amount charged by the insurer against the desired sum assured. It depends on how risky it is for the insurer to offer a life cover. 

• Policy Term - This is the duration for which the life insurance protection lasts over the life assured. It is also the period for which a ULIP bought for a child accumulates funds through market returns. At the end of the policy term, the child receives the maturity sum or the final fund value, whichever is applicable. 

• Fund Value - Child protection plans that are market-linked invest a portion of the premiums in equity and debt funds. Depending on market conditions, these funds generate returns. The final accumulation fund value is paid out to the child at the end of the policy term. 

• Premium Waiver - The best child insurance plan does not burden the child with premium payments after the death of the parents. These plans come with the premium waiver feature which deletes any future premiums while keeping the policy in force. 

Let’s see how these components work together to give your child the best insurance protection. 

How Do Child Protection Plans Work?

The basic outline of a child protection plan is as follows - 

The policyholder (parents in this case) fix a sum that the child will receive on their death or the maturity of the policy. In exchange for this protection, insurers charge a premium amount that can be paid off monthly, quarterly, half-yearly, or annually. 

Now, there are types of child plans - child ULIPs, traditional savings plans, money-back plans, or capital guarantee solutions. Depending on your choice, your age, the age of the child, your future goals, etc. the insurer will decide the premium amount. In the case of ULIPs, a portion will go towards market-linked investments and the remaining towards a life cover.  

Throughout this policy term, the insurer keeps adding bonuses and loyalty additions to the base sum assured, which increases your savings. At the end of the policy term, the child receives the maturity sum or the final fund value, whichever is applicable. 

Now if you were to die within the policy term, your nominee gets the death benefit amount along with the accrued bonuses and extra returns. The premiums that were to be paid in the future, will be waived off but the policy continues till maturity. 

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Summing Up!

The cost of raising a child is very high. The education expenses are soaring with inflation. Your child needs to be able to bank on a strong financial backup in case anything were to happen to you. Child protection plans can help you create this cover for your child so that you can rest assured.