What are Child Insurance Plans?
Child insurance plans are child-specific insurance plans. They are a customized plan that offers several benefits and assistance for various stages of a child’s life. Generally, you can use a guaranteed returned plan or a ULIP plan to save corpus money for your child.
A child plan makes sure that you build a corpus over the long term and get good returns. You have a choice to pre-define the stages when you can use these returns. They are several types of child insurance plans in the market such as,
- One-time Premium Payment Child Plans
- Monthly/Annual Premium Payment Child Plans
- Child ULIPs
- Child Education Plan
- Child Health Insurance Plan
A child plan can or cannot have a return-on-investment feature based on their interest-gaining or money-back policy terms, respectively. In the money-back policy, the child gets a lump sum for survival benefit at regular intervals exactly equal to the invested sum. These types of insurance plan can be helpful to those who need a lump sum amount at a time in the future. You should also note that these plans do not offer significant returns. So, if you need money for education expenses, then these plans might not be able to offset the impact of inflation.
An interest-gaining or investment insurance plan is a plan which provides a lump sum amount along with bonuses. You can use this type of plan to help create a corpus for your child’s higher studies expenses in the far future. These policies sometimes also offer a guaranteed return.
Top 7 Important Advantages of Child Insurance Plans
Secures Large Funds
Savings and insurance plans for children help support the regular needs of your child by offering money to help the family cover educational expenses. You want to provide the best education to your child, but the cost of education is rising day by day. So, you will need a good amount of savings to cover your child’s higher studies.
Support for Children When Parents are Not Around
The best help that child plans give is life cover. Some people purchase plans in their own name and keep the child as a nominee. And in case of the sad demise of the parent who provides the monetary assistance, the insurance money will go to the child. This money can help the child in their education or their day-to-day expense until they become self-reliant.
Different Modes of Returns
If you want to secure your child’s future financially, an insurance plan can cover it by offering a lump sum benefit in case of your demise during the plan tenure. Sometimes, they get the maturity benefits immediately. Otherwise, the insurance company waives off all future premiums, and the money remains invested till the end of the policy term. And the child gets the money at maturity, which can be useful to cover the education expenses.
High Returns at Maturity
All available child plans in the market offer return in the range of 8 – 14% by the time of maturity. This is much more than general insurance plans and best investment schemes. A child education plan such as ULIP provides you with options to gain more than this range. With proper knowledge of the bonds, you can choose between Dynamic Fund Allocation and Systematic Transfer Plan to further increase your gains.
Besides the high return benefits, child plans also provide tax benefits. These tax benefits for insurance plans are under section 80C of the Income Tax Act, 1961. The insurance returns apart from the invested capital that the nominee or policyholder gets from the insurance company also have tax exemption as per section 10(10D). However, tax laws are subject to change from time to time.
Partial Withdrawal Benefit
Child plans allow partial withdrawals from the account. These partial withdrawals are beneficial in case of any emergency. Also, if your child has a special talent in extracurricular activities with high-price equipment or tools, you can encourage your child to pursue it. Some plans also offer periodic payouts that are useful during the child’s life stages.
Adjustable Premium Paying Term and Policy Term
The best maturity time of any policy is when you think your children will need high funds. So, you have to choose the policy term wisely to meet the exact period. You can pay the premium amount in one go or at regular intervals for a certain period. Most life insurance companies offer annual, biannual, quarterly, or monthly payment options. They also give you a choice on the maturity amount payout. Depending on your chosen policy, you can either receive it as a lump sum payout or regular payments over five years or more.
It is necessary to stay secure with insurance plans during uncertain times. Before you invest in any insurance plan, you must know about the advantages it offers. Selecting the right insurance plan for your child’s protection is crucial for your child’s future. So before selecting the plan, always compare child insurance plans and insurance companies available in the market. It is also important to identify your needs and goals and the amount of money you require to cover your child’s higher education and other expenses.