How Can One Withdraw Money From A Child Plan?

In these uncertain times, it is essential to keep your future secure from any kind of unforeseen situations. And when it comes to securing the future of your child, nobody tends to take any risks. Child plans not only to safeguard the future of your child but also helps them to achieve their dreams even if you are no more around to look after them.

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In this article, we will know about how one can withdraw money from a child’s plan before maturity. Let us begin by knowing a little about child plans, types, features, benefits, and everything related.

What is a Child Plan?

A child plan is an investment plus insurance plan offered by many companies for the safety of your child’s future dreams and goals. It offers life cover and provides flexible playouts during all the crucial steps in your child’s life. A child plan is one of the best ways to save a good amount of money with regular investments for your child’s future.

Types of Child Plans

Broadly these are the Child plans available in India

  1. Child ULIP

    Child ULIP comes with 3 pronged advantages broadly. They are as follows:

    • High insurance coverage

    • Disciplined investments

    • Participation inequity market

    It means that

    • Sum assured is provided to the nominee child on the death of the parent or legal guardian

    • Future premium is waived off after the demise of the parent

    • Maturity value is paid during the time of maturity.

    Child ULIP ensures that your child’s future dreams are fulfilled with or without you

  2. Unit Linked Insurance Plans

    The payouts at the time of maturity of ULIPs are determined by the market. This is a great plan for long tenures, say, more than 10-15 years. Companies provide options between different investment funds, allowing you to receive more money than you invested. There are some plans under ULIPs where profits are directly transferred from equity to debt instruments

  3. Traditional Endowment Plans

    These are simple plans that provide stable returns in the form of bonuses over the sum assured. Generally, under Traditional Endowment Plans, bonuses are paid from the 2nd year onwards.

  4. Single-Premium Child Plan

    The policyholder pays a lump sum amount in the form of a single premium for the entire policy term and stays worry-free from remembering the due dates of premium payment. You’ll not have to come across any hassles of arranging finances for the premium payment. Some insurance providers additionally offer appealing discounts or reduce the premium on child plans.

  5. Regular Premium Child Plan

    Unlike a single premium child education plan, a regular premium child policy offers you flexibility on payment of premium. You can pay the premium monthly, quarterly, half-yearly, or yearly.

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Withdrawals Under Child Plan

Withdrawals can be made partially under Child Plans only after the completion of the lock-in period. Here are few withdrawal choices available when you invest in Unit Linked Insurance Plans under Child Plans.

  1. Withdrawals Before 5 Year Lock-In Period

    Normally, every ULIP comes with a 5-year lock-in period. If the amount is withdrawn partially or entirely by surrendering the policy altogether, or by discontinuing the premium payments, funds accumulated can only be received after the ULIP investment completes 5 years. The maturity amount will also be paid in a lump sum and consequent charges are applied after the discontinuation of the policy.

    As the ULIP life cover becomes null and void after the withdrawal before the lock-in period, you will have to repurchase life insurance online.

  2. Withdrawal After 5 Year Lock-In Period

    Generally, it is advised that instead of withdrawing the whole amount, the policyholder should make partial withdrawals once your ULIP crosses the lock-in period. By partial withdrawals, you can overcome your financial emergencies without dissolving your whole policy or breaking your fixed deposits, or taking loans.

    Depending on the policy terms and conditions offered to you by the company, certain restrictions are levied upon withdrawals. Some of them are stated as under:

    1. Limit On Withdrawal

      Withdrawal limits differ from one insurance company to another. While some companies allow 10% of the premium paid, others may allow 20% or so. The limit could also be based on the remaining fund value post withdrawal. Sometimes, if you withdraw a huge amount from ULIP, chances are you are liable to face policy termination.

    2. Withdrawals In Case Of Top-Ups

      If a top-up investment is made to your child’s plan and you are planning to withdraw an amount, the insurer will settle it from the top-up amount. It is to be noted that the withdrawals can be claimed from top-up only if it has been completed 5 years.

  3. Important Things To Remember While Withdrawing From A ULIP

    • Understand the withdrawal terms and conditions properly

    • Pay premium before or on time to avoid termination of the policy

    • Partial withdrawals can be made only after regular premium payment for 5 years

    • Partial withdrawals lead to a reduction in the Sum Assured for 2 years from the time money is withdrawn

    Here is an illustration of the Child Plan withdrawal criteria

    Details Child Plan
    Premature Closure Penalty No Charges
    Premature Closure Criteria No Criteria
    Rate of Return 12% to 14%
    Safety of Returns in Case of Demise of a Parent Before Completion of Payment Term Yes
    Time When Amount Can be Withdrawn Entire Amount Any time After 5 years
    One Time Payout for Child In Case of Demise of the Parent Yes
    Guaranteed Regular Income for Child Education In Case of Demise of Parent Yes

Key features of Child Insurance Plan

A Child insurance plan comes with many useful features to ensure a rewarding return and protection for your child. Here are some key features of the best Child Insurance plans in India:

  • Capital guarantee

  • Waiver of premium

  • Partial payments

  • Partial withdrawals

  • Sum assured

  • Tax benefits

  • Immediate financial protection

  • Loan benefits

Additional riders

Certain riders are available, which give you more than just a simple life insurance policy. These riders are available in three sub-categories:

  1. Accidental Death and Disability Benefit

    The Accidental Death and Disability Rider Benefit pay the extra sum assured in the event of your unfortunate mishap causing death or disability

  2. Premium Waiver Benefit

    This rider may be already added to the best child education plan, so check your policy document in this regard

  3. Critical Illness Rider Benefit

    Critical Illness rider benefit offers coverage for a pre-determined set of critical diseases

Benefits of Child Insurance Plan

  • Flexible payment of funds

  • Secured loans are available

  • You can choose from either ULIP or Endowment plan

  • Flexible premium payment options

  • Funds available on the demise of the insured or after the maturity of the policy

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Summing It Up

If a person has to enjoy partial withdrawals from a child plan, all he has to do is pay the premiums on time. If premium payment dates are missed out, then the policyholder is restricted from using withdrawal benefits and also the policy would be terminated. So, if you are planning to go for a child plan withdrawal, make sure your previous premiums are duly paid to avoid termination.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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Insurers Offering Child Plans

Tata AIA

Aditya Birla Sun Life

Bajaj Allianz

Max Life

HDFC Life

ICICI Prudential

Bharti AXA Life

Edelweiss Life

Kotak Life

Future Generali

PNB MetLife

SBI Life

Aviva

Bandhan Life

Canara HSBC

IDBI Federal

IndiaFirst

Pramerica Life

Reliance Life

Sahara Life

Shriram Life

Star Union

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Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
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