Can there be anything more delightful than seeing our kids fulfil their dreams?

As parents, we strive to provide them with the best opportunities, but life's uncertainties can disturb even the most carefully planned aspirations. 

This is where Child Insurance Plans step in as a security and support, offering you a comprehensive way to safeguard your child's dreams. Designed to integrate financial protection and future planning together, Child Insurance Plans are a promise to safeguard your child's future, even in your absence.

A child insurance plan combines protection and savings to secure a child's future. It offers life insurance coverage for the parent, along with a dedicated corpus accumulation for the child's future needs.  

This plan ensures that even in the absence of the policyholder, the parent in this case, the child's future aspirations are financially protected.  

Child Insurance Plans can be broadly classified into the following types:

1. Traditional Child Plans

Traditional Child Insurance Plans are basically the savings plans secure from volatility and risk of equity markets.

They offer a safe investment option, ensuring a secure financial future for your child. They provide a guaranteed death benefit in case of your unfortunate demise during the policy term. Additionally, in this case, the future premiums are waived off and the plan also provides a maturity benefit as and when due on maturity.

These plans assure both protection and disciplined savings, making it a suitable investment option for parents seeking long-term financial security, with a set goal, for their child's aspirations.

2. ULIP Child Plan

A Child ULIP Plan combines insurance coverage with investment opportunities. It offers the potential for higher returns linked to market performance. 

You can choose from various investment funds based on your risk appetite and financial goals. Thus, more suited for investors who have a higher risk appetite and suitable for parents looking for growth-oriented investments. 

The ULIP Child Plans provide a death benefit on unfortunate demise of the policyholder parent. Additionally, the policy continues after this, and the future premiums are funded by the insurer. On maturity of the policy, the fund value is paid as the maturity benefit, thus securing the future of the child.

A child insurance plan focuses on building a corpus for future financial needs of the child, while at the same time, providing financial protection from any unforeseen event like the parent’s demise.

Here is how a Child Insurance Plan works: 

• Choosing and Buying the Most Suited Plan: Parents or guardians select a child insurance plan based on their financial goals, premium-paying capacity, and desired coverage amount.
• Regular Premium Payments: The policyholder pays regular premiums towards the plan as per the frequency and mode selected. 
• Investment: A portion of the premium goes towards providing life insurance coverage for the policyholder, while the rest of it is invested by the insurance company to build a corpus.
• Growth: 
  • Growth of Funds in ULIP: In ULIPs, the investment grows according to the performance of the funds selected. 
  • Growth of Corpus in Traditional Plans: The corpus for the maturity benefit grows as per the terms of the traditional plans.
• Maturity Benefit: On maturity, the policyholder receives the maturity benefit. 
  • Traditional Plans: In case of traditional plans, the maturity benefit is either guaranteed or non-guaranteed amount as per the policy. 
  • ULIPs: In ULIPs, the maturity benefit is the fund value of the policy on maturity.
• Death Benefit: In the unfortunate event of the policyholder’s demise during the policy term, a death benefit is paid to the nominee. 
• Premium Funding / Premium Waiver: Most Child Plans provide premium waiver or premium funding after the death of the parent (policyholder) to ensure that parent’s savings for desired goal of child’ bright future continues uninterrupted even in insured parent’s absence.
• Flexibility: The ULIP Child Plans offer the flexibility to choose or switch between different funds based on the policyholder’s risk appetite and financial goals. 
• Riders and Additional Benefits: Riders can be added to the plan to enhance its coverage benefits. Some plans also provide benefits like income benefit and loyalty additions.

To understand the working of Child Insurance Plan better, let’s consider the case of Nikhil. A software engineer, staying in Delhi with his wife and a daughter who is turned 5-year-old last month.

Nikhil bought a ULIP Child Insurance Plan on her daughter’s 5th birthday to cover up for her higher education. He plans to invest Rs. 1,00,000 per annum over a period of 15 years. His policy has a death benefit of 12 lakhs. 

Case 1: When Nikhil survives the policy term, he will receive the fund value of his investment. Depending on his policy feature, he can opt to receive it in lumpsum mode or regular payouts. 

Case 2: In the unfortunate case of Nikhil’s death during the policy term, his daughter will receive the death benefit which is 12 lakhs here. The policy, however, will continue after this for the remaining policy term. The future premiums would be funded by the insurer and his daughter will receive the fund value on maturity, in addition to the death benefit already received.  

Child insurance plans offer a range of features and benefits that secure a child's future and financial well-being.

Financial Security in Parent's Demise

Child Insurance Plans are a safety net for your child’s future. In the unfortunate event of the policyholder's demise, the payout from these plans helps maintain the child's quality of life and covers their educational aspirations.

Secured Saving for Your Child's Higher Education

Child insurance plans provide a certain maturity value which might be guaranteed or non-guaranteed depending on the plan. Thus, they create a dedicated corpus that ensures your child's education aspirations are met without financial hurdles. 

Liquidity in Case of Financial Emergencies

• Flexibility of Partial Withdrawals in ULIP Child Plans - ULIP child plans allow partial withdrawals after a 5-year lock in period. This feature provides you with the flexibility to cover unforeseen financial needs or emergencies without closing your investment completely. 
• Facility of Availing Loan in Traditional Child Plans - Loans can be availed under traditional child plans, if required subject to terms and conditions in the plan.  

Income Protection with Regular Payouts

Child insurance plans in many cases provide periodic payouts, ensuring a steady income stream for your child's evolving needs. This acts as a safety net, ensuring that essential expenses are met, even in your absence.

Child insurance plans help you systematically plan for various life stages of your child’s life. You can align these payouts with milestones like college education, post-graduation, or marriage, ensuring funds are available at various stages of your child’s life.

Bonus Accumulation

Some traditional child plans have the feature to accumulate bonuses or guaranteed additions over time. These bonuses can significantly contribute to the final maturity amount, thus boosting your investment.

Customizable Riders

Child insurance plans can be further enhanced with riders. These riders can include critical illness cover, accidental death benefit, premium waiver benefit, etc. With these riders, you can customise the plan to your specific requirements.

Choice of Funds to Optimise Returns

The ULIP child insurance plans offer the flexibility to choose investment funds based on your risk appetite and financial goals. Thus, you can align your plan with your investment strategy. 

Premium Waiver / Premium Funding Benefit

Most child insurance plans come with a premium waiver / premium funding benefit. In the unfortunate event of the policyholder's demise, this benefit ensures that the future premiums are waived off or funded by the insurer, allowing the plan to continue for the child’s future is secure in absence of parent.

Tax Benefits

Child insurance plans offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, as per the prevailing tax regime, thus allowing you to save on taxes while securing your child's future.

The most important step in your insurance buying journey is to start your child's financial journey early, as early as the day they are born, to leverage the power of compounding. Time is the biggest factor in building a substantial corpus for your child’s future. 

Apart from this, selecting the optimal child insurance plan requires careful consideration of various factors. Each of these factors play a pivotal role in securing your child's future effectively. 

Here are some of these factors to consider and make an informed decision:

Inflation and Education Costs

Factor in inflation and future education costs while determining the coverage amount. Ensure that the plan's benefits are aligned with the rising expenses of higher education and other essentials.

Premium Waiver Benefit

Opt for a plan that offers premium waiver benefit. In case of unfortunate death of the policyholder, this feature ensures that the policy continues, with all future premiums waived off, thus keeping the child’s future secure. 

Liquidity and Riders

ULIPs allow partial withdrawals after 5 years. Traditional Plans offer loan facility. Some plans offer income benefit options. Thus, check for liquidity benefits in the plan. Also check for the available riders in any plan. These features offer flexibility and enhance the coverage, thus covering the changing financial needs.

Premium Payment Frequency

The plan should allow multiple options for premium payment frequency so that you can choose the one that aligns with your financial capacity. 

Regular Payout Option

Consider plans that offer regular payouts during crucial milestones of your child's life. These periodic inflows ensure consistent financial support, enabling your child's dreams without interruption.

Associated Charges in the Policy

In case of ULIPs, check and understand the policy charges involved, administrative charges, fund management, premium allocation, switching charges etc. Choose a plan that has low charges, provided other factors are aligned with your goals.

Terms and Conditions

A careful review and understanding of the policy’s terms and conditions is of utmost importance. It ensures that there are no surprises later, and you make the most of the plan’s benefits. 

Riders can be added to your child insurance policy and allow you to further customise and enhance the coverage of your base plan. Riders are the optional add-ons that you can add to your base plan in reasonable rates to extend and enhance the financial protection. 

Here are some common riders that can be added to child insurance plans:

1. Critical Illness Rider

This rider provides financial coverage in case you are diagnosed with a critical illness covered under the policy. It helps manage medical expenses thus ensuring that you get your medical treatment without having your family suffer through the financial hit. 

2. Accidental Death Benefit Rider

In the unfortunate event of your demise due to an accident within 180 days of the accident, this rider offers an additional payout on top of the base sum assured, providing extra financial support to your family.

3. Premium Waiver Rider

The premium waiver rider ensures that in the case of policyholder’s death, the future premiums are waived off, and the policy continues to eventually benefit the child.

4. Income Benefit Rider

With this rider, the policyholder's family receives a regular income in case of the policyholder's unfortunate demise. This additional income helps maintain the family's financial stability.

5. Waiver of Premium on Disability Rider

Works like the premium waiver rider with the only difference being the trigger event, which, in this case is, disability due to an accident. This rider ensures that in such a case, all future premiums are waived off, ensuring the continuity of the policy for the child's benefit.

6. Hospital Cash Benefit Rider

If you undergo hospitalization due to any medical situation, this rider provides a daily cash benefit, thus helping you manage the overhead expenses that arise during the hospital stay. 

Child insurance plans stand as a vital pillar of financial planning nurturing the dreams and aspirations we hold for our children. They offer security, savings, and growth potential. They not only protect against unforeseen circumstances but also empower parents to pave the way for a brighter future.

With a Child Insurance Plan, you can invest wisely, secure your child's dreams, and embark on a journey towards a financially secure tomorrow.