The Need for Child Insurance
There are plenty of investment options that an individual can choose from – mutual funds, share market, gold, public provident fund, etc. Some of them offer a healthy return on investment. However, in order to ensure an income from these investments, one must keep paying a certain amount. If the person investing in these schemes passes away, then they will be discontinued.
According to the National Crime Records Bureau, every 90 seconds, an Indian dies in an accident. All parents want to secure their offspring’s future. A child is essentially a dependent and must be protected against any contingencies. After all, parenthood is not only about love but also responsibilities. If a breadwinner dies, a family might face severe economic crisis and all the plans for the future might go haywire. But all the current and future expenses must be met, especially the cost of educating a child. Without a regular source of income, continuing education is a challenge. In the last few years, education has become expensive but it cannot be discontinued under any circumstances. In fact, the rising cost of education is a major headache for most parents. Education loan is always an option, but they are usually available for professional courses and for select universities. Also, the burden of repaying the loan will fall on the child’s shoulders.
Investing in a Child Plan
The moment a child is born, the parents must review all the numbers and assess their financial requirements. Accordingly, they should raise the cover on their insurance policies. For example, if the average cost of an acquiring a higher education degree from a university is Rs 8 lakhs, the assured amount should be at least Rs 25 lakhs at the time of maturity. Ideally, the parents should invest in a child insurance plan. Apart from providing a financial cover, a child plan also offers tax benefits. These policies are designed to meet the expenses a child will encounter while growing up – higher education, marriage, and so on. Premiums paid for such policies are eligible for tax-deduction under Section 80C and any income is tax-free under Section 10 (10D) of the Income Tax Act, 1961. Almost all insurance companies offer child insurance.
However, some people prefer term investment over child insurance as the latter have a higher cost. On the other hand, term insurance plans offer a high cover at low cost. And if the policyholder dies, the nominee will receive a lump sum. But this is where the plan terminates. So, if the investor dies when the child is fairly young, the latter will have to sustain on that particular amount. The major limitation of a term insurance scheme is that it does not offer the security of a regular income.
Benefits of a Child Plan
A child insurance plan has certain feature that make it an ideal choice for parents.So if the policyholder dies, all the future premiums are waived.Also, in the case of this eventuality, the company not only offers a lump sum but also continues investing the money on behalf of the deceased. The nominee receives the final amount once the policy matures. Thus, if the investor dies, the nominee receives a significant amount- the maturity benefit and the death benefit - during two stages of his/her life. However, if the insured is alive, the insurer still pays the sum assured along with a bonus as survival benefit.
Most insurance providers also offer child plans with maturity benefits that result in a timed release of payout at crucial junctures of an individual’s life. Thus, a nominee might receive a certain sum on turning 18 or after that. Therefore, parents should not delay in planning for the future and must ensure that the child has financial security.