Child Plan a Better Option than Term Plans and ULIP

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Every parent gets chills on the thought of leaving their child/ children without proper means to lead a comfortable life. There is a way to minimize this risk which is called life insurance cover. Financial planners consider term plans as the most suitable way to protect oneself against the risk of early death.

They surely are suitable because they provide a high cover at a very less price and give out a lump-sum amount to the nominee in case the policyholder passes away during the policy term. But the policy ends there and then.

However, a child insurance plan provides a lump-sum payment after the demise of the policyholder, but the policy does not come to an end. All upcoming premiums are waived off and the insurance company carries on with investing money on policyholder's behalf.

The child gets the money at certain specific intervals as per the policy. The parent's worries regarding their child's needs are taken care of even through these plans.

Almost all insurance firms have child plans or life insurance for children in their portfolio of services. Some of these are market-linked policies (ULIPs), which let the insured to invest in equities and debts, while others are traditional plans, which invest only in debt. In case of a life insurance policy, the premium paid for a child plan is eligible for tax deduction under Section 80C, while any income from the plan is tax-free under Section 10 (10D).

Child plans critics say that these policies are offered at a supremely high cost compared to a simple term plan. They are of the view that instead of putting a massive sum as a premium to a child plan, a parent can purchase a term plan of the same amount for himself and invest the remaining amount in mutual funds. On maturity, he/she will have a bigger corpus

Observing this brings our attention to a very crucial detail! In case of the demise of the parent after five years of taking the plan, there would just be a payout of lump-sum for the immediate needs of the family and consequent investments in the mutual fund would come to standstill.

The child plan, however, would not only pay the lump sum but would continue to invest on behalf of the policyholder. The waiver of premium features in a child insurance policy is a bonus. It is the biggest benefit as it won’t let the death of the insured disrupts the investment plan for his/her child.

Child plans are developed to meet the needs of the child. An ordinary ULIP stops if the insured person passes away. This isn't good news for the insured as the funds would be given out too early and might be used to meet other needs, not the ones planned for.

The premium of a child plan is anyway higher than a ULIP and a Term Plan but a Child Plan will at any cost serve the purpose of providing periodic payouts to the child when they require them the most. ULIPs and Term Plans are decent plans too but can't replace child plans!