Typically, most people purchase life insurance policies to compensate the family of the insured for the loss of income in the event of his/her death. On the contrary, a dependent life cover is a more unconventional insurance policy wherein insurance protection is offered against the death of the dependent. Such policies are mostly bought to cover the financial implications of losing a non-earning member, such as burial costs.Read more
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A policyholder can purchase life cover for their dependent children and add it to their existing policy. The dependent child, in this case, is also insured against death. In the event of the unfortunate demise of the child, the parents shall be entitled to the assigned death benefit amount. However, to qualify as a dependent child, (s)he has to be below the age of 25 and financially rely on the insured parent.
Note that in the case of dependent child life insurance, the child is the insured person, and the parent is the policyholder. The policyholder is in charge of premium payments and receiving the death benefit applicable against the insured child’s death.
The premiums are lower given that children fall in the low-risk bracket in terms of health.
The benefit amount is payable to the policyholder (parent/guardian) on the death of the dependent child.
Typically, coverage under dependent child life insurance is limited to burial/funeral expenses.
Once the child reaches a certain age (usually 21-25), the policyholder can transfer the policy in the name of the insured child. The insured can then take over premium payments to keep the policy in force or convert it to a whole-life policy.
The policy is issued without the need to undergo medical check-ups.
The child must be below 25 years of age.
The child has to be financially dependent on the policyholder.
Dependent child life coverage ceases at the age of 26. However, extended coverage may be allowed if the child is suffering from disabilities or is a student.
Although unconventional, dependent child life insurance does come with certain advantages. These are:
Buying insurance requires you to submit proof of insurability to the insurer based on which premiums are calculated. This includes medical check-ups, pre-existing illnesses, family history, etc. However, when you buy a dependent child life insurance cover, the child does not have to go through any of these. Therefore, even if the child later develops a health condition, their insurability remains intact.
Premiums for life insurance increase substantially with age, given the associated health risks. Therefore, buying health insurance in the 30s will cost your child more than paying future premiums against their dependent child life cover. Moreover, this allows you to lock in a low premium rate; therefore, the insured does not have to worry about drastic premiums increases with age.
Plans such as these allow you to finance the funeral of your child in the event of their unfortunate demise. Given the rising costs of organizing such events, the death benefit amount applicable with a dependent child life cover ensures that you do not have to pay out-of-pocket and mourn in peace.
On converting a dependent child life cover into a whole-life policy after transferring ownership to the child, a percentage of the premium goes towards building a cash value. Since this starts from a very young age, there is more time for the cash value to accumulate.
It is advisable to first ensure comprehensive protection for yourself before purchasing life insurance for a dependent child. As a parent, life insurance against your death makes more sense as the benefit amount can be used by your dependents to financially support themselves. All other financial aspects such as retirement planning, paying off debts, and liabilities should be taken care of before you invest in a dependent child life insurance policy.
However, if you are aware of a family history of genetic ailments, you may want to insure your child before they are diagnosed with it. There will be no risk of them being denied coverage later if you invest in the plan now.
You should take the help of a financial advisor to evaluate if investing in a dependent child life insurance policy is a good idea. The insurance space in India currently features an exhaustive list of life insurance policies, and, therefore, you should weigh in your options before making a decision.
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