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Handy Guide on Child Plans

As a parent, everybody wants a secured life and the best education for their children. But with  skyrocketing education costs and expensive lifestyles,  planning can be the only solution for the future of your children. A good monetary planning starting since the birth of your child will definitely be a success path that will lead towards financial freedom in your life.   

Various investment instruments are available in the market that include mutual funds, public provident funds, real estate investment options, shares, gold and bank deposit options.  However, to save funds using these self-funded options, it is essential for an individual to be alive and keep investing regularly. In case of unfortunate demise of an investor, the funding will be stopped and the plan closes with no benefits utilized. Investing in a child plan can be a good idea since  Child plans  are self-funded investment options with the benefit of  the insurer taking  up the future payment options of the plan in case of the policyholder’s demise. In case of a parent’s demise, child plans have the flexibility to continue with the insurance company waiving off the balance premium and maintaining the plan until the child turn major.

Detailed below is an understanding of a child plan:

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Concept of child plans

Bringing up a child in today’s environment is challenging in all fronts, be it mentally, physically or monetarily. Child insurance plans are basically crafted to cater to the future monetary needs of your child. Children require monetary support in major milestone points in their life. A good child plan specific to a common and important milestone in a child’s life will be a good decision.  Child plans are available specifically for higher education, setting up a business, or marriage. Buying child plan for specific needs ensures that your child receives the payouts from such policies at the time of need even in your absence. Moreover, it is an investment made only for child's needs in future and the present day expenses need not be forbidden.

These plans enable regular saving for your child with a guarantee of funding your child’s needs if something unfortunate happens to you. Child plans  plan pay out the decided sum to the child at the decided age even after the investor’s demise.

Distinctiveness of child plans

Child plans are different from other investment instruments because of their premium waiver feature. In general, the nominee in a child plan, the child  receives two payouts from the insurer in case of the policyholder’s  who is the parent or the guardain’s  death. The first payout is received immediately after the demise of the parent or the guardian in the policy and the second payout is received by the child at the close of the plan or when the child turns major, all depending on the child plan policy construction. Child plans do not  terminate like  other insurance policies. Additionally, some child plans also facilitate fixed payouts to the child at  different life stages. However, in case of the policyholder’s survival the sum assured along with bonus is given to the child in the form of survival benefit.

An important criteria in availing a child plan is to read the policy document thoroughly before commencing on the policy.

Kinds of child plans

Child insurance plans can either be ULIPs or endowment plans. Endowment plans offer with-profit returns or returns along with bonus. Therefore, the returns from these kinds of plans mainly depend on the surplus and the profits generated by the insurance company.

If taking risks through equity exposure does not suit your risk appetite while you are planning for your child, then endowment plans with bonus options would be suitable for you. However, if your risk-bearing ability is high and you are looking for better returns, then ULIPs are the best options for you. The money you pay as premiums towards ULIPs is invested in equity funds and this it can prove to be a great investment  for your child  years down the line. It’s a known concept that equities perform better in the long run than any other assets.

Written By: PolicyBazaar - Updated: 17 August 2020
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