Everything You Must Know About A Child Insurance Plan

Child Insurance Plan

A financially safe and secure future is the need of the hour in today’s day and age where our needs are ever increasing, and inflation is on the rise.  Not just earning more but also financial planning will be imperative in such a scenario.  Parents always go the extra mile for their children’s secure future. However, a sudden emergency could lead us to dip into our savings thereby leaving little for our children’s future. This is precisely why a child insurance plan is very important

To illustrate; an MBA from a reputed institute today is 400% more than what it was in 2007. Even if costs continue to rise on an average at 20% per annum, this is going to be very steep in the years to come. Furthermore, children need a lot more support in addition to education and a child insurance plan can help with these so that we can fulfil their dreams.

Now let us take a look at what a child invest plan exactly is.

A child insurance plan is a type of insurance plan that offers a lump-sum payment on the death of the policyholder. Then how is it different from any other insurance plan? In a child insurance plan, all future premiums are waived and the insurance company continues investing this money on behalf of the policyholder in case of his/her death. Some of these child insurance policies are market-linked policies, which allow policyholders to invest in equities and debt, while others are traditional plans, which invest only in debt.

The advantages of a child investment plan

A child insurance plan has several advantages. Let’s understand these so you can start saving for your children’s bright future. 

  • Financially secure future: Maturity amounts from child insurance plans can be used to fulfil future needs as may be appropriate. By the end of the term, you will have a corpus that will help fulfil your child’s dream and gift your son/daughter a bright future.
  • Customised payouts: Often one wonders – “what if I need a certain amount before the plan matures?” Well, this is one of the biggest advantages of a child investment plan. You can choose a child insurance policy that offers periodic payouts. This is usually a prefixed percentage of the sum assured. Periodic payouts are planned at various stages of a child’s life, which makes fulfilling short term or long term needs easier.
  • Lump-sum death benefit: In case of insurance policies, it is always better to consider the worst scenarios and then think how a particular policy will prove to be beneficial. In case of unfortunate demise of the policyholder, the child’s future will still be secured by a child investment plan. Yes, as discussed earlier, in case of demise of the policyholder, all the future premiums will be waived off. In addition, a lump-sum death benefit is also paid to the child on maturity.
  • Protection from capital erosion: Child plans offer privileges of fund selection and Systematic Transfer Plan or STP to plan your investments as per expected returns required during different life stages. Now, why is this necessary? As markets fluctuate, the returns over investments will vary. To counter this scenario and make the best of the invested amount and save it from capital erosion, dynamic fund allocation strategy needs to be adopted. Through STP, you can automatically switch the purchased units of funds to make the best of market volatility.
  • Flexibility: You can choose the investment mix as per your preference or requirement. There is an option to choose between high-risk equity investments and lower risk debt investments. Depending on the risk factor and financial needs, parents can either choose to regulate the investment mix either on their own or opt for an automatic mode keeping the safety of the child’s financial corpus paramount.
  • Choose Riders: A few child insurance plans also come with riders. One such rider is the personal accident insurance. A child investment plan will only waive off the premiums in case of death of the policyholder. But taking an accident insurance as a rider provides an additional benefit in case of unfortunate demise due to an accident. Of course, whether or not to opt for riders is entirely your choice.
  • Collateral for loans: One major advantage of a child insurance plan is that it can be used as collateral for taking an educational loan. Apart from the periodic payments as pre-decided, you can also use your child investment plan as a collateral for an education loan if you need more money for your child’s higher studies or wish to send him or her abroad for higher studies. Thus, with a child plan, you do not have to worry about offering a collateral security for education loan.

Why you should have a child insurance plan

When should you buy a child insurance plan?

It is recommended that you buy a child investment plan as soon as possible. Again, it depends on your financial requirement at the end of the assured period. You will have to take into consideration the amount you need and the duration you will require to get to that target. Hence its suggested that you start as early as possible, because the more time you are invested, the more you will save. In addition, you won’t have to deal with the stress of paying a high premium as you can save small amounts and expect huge returns over a period of time.

Now that you know the advantages of a child investment plan, let us quickly take you through the 5 most important tips that will help you pick the best child insurance plan in India.

Top 5 tips to get the best child insurance plan

  1. Invest in plans with premium waiver benefit:  We have already seen how crucial this feature is. It is very important to choose a child insurance plan that offers you premium waiver benefit in case of your untimely death. This is also applicable when the policyholder is disabled due to some reason and is not able to pay the premium. This way, your child’s future remains financially stable. Most of the companies offer this as a part of the child investment plan or as an added feature.
  2. The type of child investment plan: Another decision that may be difficult to make is whether to go for an equity-linked child plan or simple endowment plans. Both these plans have their pros and cons. It really depends on your preference.   If you have an appetite for equities and a considerable investment time frame (at least ten years), you can consider opting for equity-linked child plans. If you don’t want to take risks and your investment time frame is lesser than ten years, you can pick and choose an endowment plan instead.
  3. Consider the financial needs: Your child will need financial support at various stages of life. You will not only have to consider the maturity amount, but also periodic payments at various stages.
  4. Track record: Make sure you the insurance company you are buying a child insurance plan from is trustworthy.  You can use various parameters such as claim-settlement ratio, financial stability and customer reviews.  You will find online forums where the pros and cons of such insurance companies are discussed.
  5. Compare: Compare child investment plans across 4-5 insurance companies, analyse their pros and cons, and only then zero-in on a particular plan that is best suited to your individual needs.

Now that you know everything about a child insurance plan, it is time to go ahead and buy a child investment plan that secures your child’s future in the best possible way.


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