Key Features of Child Plans
Child plans can be considered as insurance cum investment plans that help an individual create a corpus for children's future, over a period of time (policy term). On maturity, these plans pay a lump sum amount which can be utilized to pay your child's college fees or marriage expenses.
One Policy Multiple Benefits
Child plans offer the benefits of both investment plans as well as insurance policies. This means that a child plan can help you build wealth, generate a healthy corpus for future expenses while also securing the future of your kids with or without you. Other than child investment plans, there are no other investment opportunities that offer these two benefits at the same time.
Generally, child plans offer guaranteed returns that are lower than the market best. This is because you are guaranteed those returns regardless if the market tosses or turns. Rest assured that your money is secured, and when the time comes, you will receive the promised sum assured that was projected at the beginning of your policy without any fail. You are also eligible to receive several bonuses, if applicable, from the insurance company if you diligently maintain your policy without fail. These features make this policy one of the best investment policies for a child.
In terms of life cover, child investment plans allow you to save money and protect your child’s future while also providing life insurance coverage to you. In case of your very unfortunate demise, your child can and will still receive the full maturity amount upon the term completion of your policy. The life coverage feature is unique to investing in the child investment plan.
Payout As Per Your Terms
One of the main reasons/causes people do not want to invest is because they can’t or rather don’t want to wait for 30 years to finally get the benefits of their investments. Most parents would rather just save up the money in their account to have the maximum liquidity possible. To counter this problem, child plans integrated the money-back features into the policy to ensure that investors don’t need to wait till the end of their term to get any benefits from the policy.
When you purchase a child investment plan, you can start getting regular payouts from your policy after a fixed period to help you meet the expenditure that comes your way. This way, you are not required to wait till the end of your policy to get some benefits. The benefits you receive before maturity do not reduce your sum assured amount by a lot. You still get almost the entire sum assured amount as was promised due to all the bonuses and other payments accumulated throughout the course of the policy, depending on the terms of the policy
If you do choose to take the regular payout, you can choose the frequency of the payout. This is not a necessary feature, you can choose to use this pre-maturity payout feature, or you can just choose to get the entire amount at the end of your policy. Both of the options are widely used by people based on their needs, goals, and monetary requirements.
Child plans which are essentially insurance policies, provide guaranteed returns with no terms and conditions. The sum assured that is promised to the customer at the time of purchasing the policy is delivered without any question at the end of the policy term. This excludes any bonus payments the policy might have earned in the course of the policy, which is completely the discretion of the insurer, whether they will deliver it or not.
So, it is clear that you can get the complete sum assured money at the end of your policy term as promised at the time of purchasing the policy. The guaranteed returns are something most other investment opportunities can’t promise. Some of the most popular investment opportunities, such as mutual funds, do not guarantee any returns because they are subject to market risks.
The guaranteed returns do not only give child plans a competitive edge when it comes to securing the future of your kids, but you can also calculate properly what your target should be for saving up and how much do you have to pay as premiums every month to meet your goal amount in the future. In general, it is advised to calculate the sum assured to be at least 10 times your current annual salary to make sure you are prepared for the inflation-induced expenditure of the future.
Rider Benefits to Improve Coverage
Another great feature of child investment plans is the ability to buy add-on riders at some extra cost per premium to get additional coverage for various scenarios. As these policies have life coverage, it is guaranteed that your child will get the sum assured at the end of the term, but what happens to the premiums that are yet to be paid by you after you are dead?
Well, to combat such a situation, these policies have an in-built premium waiver feature that waives off any unpaid premium after your death to ensure no extra financial burden is being laid on to your grieving family and child. Sometimes this feature also covers other situations as well, such as illness/injury of the policyholder. Most child plans offer an integrated premium waiver feature. If your policy does not have it integrated, you should spend some extra money and get this coverage as a rider to make sure you are protected when the time comes.
In case you require immediate hospitalization or medical expenditure, a child plan offers you immediate lump-sum payments from the sum assured in case this situation arises. All you as a policyholder have to do is purchase the additional hospitalization and medical expenditure rider to get this additional coverage beyond your regular policy coverage if offered by the policy.
These rider features add a lot more value to your policy and offer a lot of benefits for various situations. These riders are treated as optional because it is not necessary since many people already have dedicated health insurance that offers the benefits of hospitalization and medical expenses. These riders are aimed at people that do not have such features and can then just add on those benefits to their already existing policy. However, please note that riders are not mandatory and are available at additional cost.
One of the Best Investment Plans for Saving Taxes
Child plans offer some of the best tax-saving features. Any child investment plan provides tax benefits up to 1.5 lakhs per month under the section 80(C) of the Income Tax Act. The aforementioned benefits are for the amount that is paid for in the form of premiums of the policy per year.
You are also eligible for tax exemption under section 10(10)(D) of the income tax laws, which makes any returns you gain from this policy tax-free, be it within the terms of the policy or after the completion of the policy terms. There are certain terms and conditions that need to be met for you to get all the returns completely tax-free, so it is important that you learn more about the terms and conditions before purchasing the policy. However, tax laws are subject to change from time to time.