What is a Child Insurance Plan?

A child insurance plan refers to the financial security offered by a combination of long-term investment options along with a life insurance cover. The main purpose of the insurance is to ensure financial security for the future of the child through:

• Investments made while you are alive and Protection in case something goes wrong on your way.

When the plan matures, you can receive a certain lump sum amount, which will serve various purposes for your child in the future, like paying his/her education fee or marriage expenses. Thus, the insurance plan serves as a safeguard in case of any kind of untimely demise or terminal sickness that might occur to you, leaving your family and children without any kind of financial security.

While you are building the investment corpus for your kids, in case something goes wrong to you, the insurance plans serve as a safeguard to the corpus, which can further invest the money in your absence, giving the amount of investment you had intended to give to your kid.

Additionally, the child insurance plan makes periodic payments out of the corpus built,t which can coincide with important events in the future of your child, id like his/her education, professional courses, higher studies abroad, or marriage ceremony.

Today, in the present scenario, the cost of education and other expenses are soaring, and hence a financial plan becomes necessary in the present age of high costs and growing inflation. Choosing the best child plan at an early stage can help parents secure their child’s future financial requirements effectively.

Importance of a Child Insurance Plan

The cost of education and lifestyle is going up day by day. From schooling, coaching fees, to international educational plans, you, as parents, have many kinds of financial responsibilities. The basic objective of these plans is to build a corpus to serve your future financial goals without being interrupted in case of any kind of uncertainty or unexpected incident to the family.

The major importance of these plans includes:

• Creating wealth over time
• Financial discipline in the form of premium payments every month
• Insurance cover to the parents
• Goal-based saving of money
• Tax efficiency
• Planning for the future, considering inflation and increasing costs

Different Types of Child Insurance Plans

Child insurance plans are one of the widely available products of insurers today, and all of them come with additional riders to suit customers with diverse needs.

Child Endowment Plan

Child endowment plan provides the option of safe investment of your money along with guaranteed benefits at maturity. The main purpose of these child investment plans is to help you know how much money you need in the future for your child.

The guarantees provided and goal protection options ensure the achievement of your financial objectives, regardless of your presence or your child’s presence.

The following are some benefits of these plans:

• Guaranteed lump sum amount at maturity
• Savings accumulation in the form of investments
• Life cover protection
• Financial security for the child

Child Money Back Plan

Child money back plan provides a long-term and safe investment option for the future financial goals of your children. The main advantage of these child investment plans is to meet long-term objectives like paying college and university fees.

Majorly, these plans provide periodic payouts from the policy during the whole tenure. These payout plans will help parents meet milestone expenses like:

• School admission fees
• Coaching classes expense
• College tuition fees
• Arrangements related to the wedding ceremony

Also, these plans provide bonus additions that make the maturity amount larger.

These plans offer the following advantages:

• Regular payments
• Bonus additions
• Life insurance cover
• Guaranteed financial assistance

Child Saving Plans

Child savings plans refer to unit-linked insurance plans (ULIP), which provide flexible investment options for parents. You can opt for any kind of investment depending on the choice of your plan.

Depending upon the type of fund you can invest in:

• Equity funds
• Debt funds
• Balanced funds

Many plans also provide automatic switching of the portfolio based on the market conditions to optimize investment.

Also, many child savings plans give you the facility to switch the fund, do partial withdrawal of money after completing the minimum lock-in period of 5 years, and grow your corpus in the long run.

Important Features of a Child Insurance Plan

The following features decide the effectiveness and viability of a child insurance plan.

Life and Health Protection

A child insurance plan provides protection to the family members of the policyholder in terms of:

• Unexpected accident resulting in your death
• Diagnosis of critical illness in your life
• Permanent disability
• Emergency medical treatment requirement

This feature ensures that in any kind of unfortunate event in the life of the insured person, his/her kid will be able to achieve his/her future goals, such as education and marriage.

For example, in case of accidental death of the insured person, the insurer may waive future premium payment plans but continue the investment on behalf of the kid. The child will receive the amount he had initially intended.

Affordable Premium Payments

Another important advantage of child insurance plans is the affordability of the premium plans. Even starting with a relatively small amount, you can create a huge corpus over time in your child’s insurance plan with the effect of compounding on investment.

The main advantages of affordable premium payments include:

• Low initial investment
• Can be availed by salaried individuals or self-employed persons
• Ideal for middle-income families
• Suitable for young parents

Guaranteed Investment Return

There are some plans that provide guarantees in terms of investment return. The following are some advantages of guaranteed investment returns provided:

• Provides financial certainty in terms of future availability
• Builds a stable financial asset in the form of an investment corpus
• Protect from market volatility

Partial Withdrawal Facility

There is a provision in some child insurance plans for partial withdrawals after completion of the minimum lock-in period of 5 years.

The following are some reasons why parents need partial withdrawals from these policies:

• Meeting emergency requirements such as school admissions
• Higher education cost
• Professional courses
• Medical emergencies

Such withdrawal doesn’t affect overall plan.

Conclusion

In conclusion, a child insurance plan is a complete financial product for the future financial goal fulfillment of your child. From creating wealth to providing life cover, child insurance plans help with everything.

As per the current scenario, education costs are increasing day by day, and thus securing your child becomes inevitable for parents. Whether you choose a guaranteed child endowment plan, a child money back plan, or a ULIP-based child savings plan, you must plan in advance for your child’s better future.