Everything you must know about a child insurance plan

In an age when requirements don’t seem to cease and prices are on a constant rise, it has become imperative to have a financially safe and secure feature. While you may find ways to earn more and save, this might won’t suffice in providing you the financial security you must have. Parents go an extra mile to give love to their children and do everything possible to shape a bright future them. But with the growing inflation rate, your financial condition might not always support the dreams you have seen for your children. You might have saved some money for your child’s education or marriage, but you never know when a contingency will strike and you will have to end up spending the savings for your children’s future on something else altogether. This is why a child insurance plan is of prime importance.

Now let us take a look at a simple example. The priority for any parent is to provide the best education to their children. But education costs have grown over the past years and how! IIM-Ahmedabad charges Rs. 19.5 Lac for a 2-year course.  This is a whopping 400% higher than what it charged in 2007. If the costs keep growing even at an average of 20% per year, imagine the fees you’ll have to pay for your child’s MBA. And it’s not just about MBA; even graduation from a reputed college will cost you a lot in the future. And it is not just about education, there are other requirements too that demand a lot of money. Considering these scenarios, isn’t it wise to invest in a child insurance plan and secure your child’s future?

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

What we discussed above was an insight on whether or not you should buy a child insurance plan. Now that you know the importance of a child investment plan, let’s go deeper into the benefits of a child insurance plan.  A child investment plan has a lot more advantages. Let’s look at a few of the most important advantages of buy8ing a child investment plan in detail, so that you get a better understanding of the child insurance policy and you can start saving for your children’s bright future accordingly.

• Financially secure future: Child insurance plans ensure your child’s future is financially secure. The maturity amount can be used to fulfill the needs of your children, and it allows you to provide them with everything you had planned for them. So whether it is an MBA or going abroad for MS or any other course, you won’t have to worry about finance.  By the end of the term you will enough money to fulfill your child’s dream and gift your son/daughter a bright future. As discussed earlier, education cost will keep on rising and a MBA from a reputed institute such as an IIM may cost up to Rs. 1 Cr.* by 2025. This figure is arrived at after considering the inflation in fees at around 20% per year. Child investment plans prove to be beneficial as they consider the inflation rate and plan the maturity amount and other benefits accordingly.  
• Customised payouts: Now one question that might be running through your minds must be – what if you need a certain amount for your child before the term 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 the 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 policy holder, 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? You have to understand here that 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 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.

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 it s suggested that you start as early as possible, because the more time period you will get, the more you will save. In addition, the 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 get 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. Hence it is very important to choose a child insurance plan that offers you premium waver 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 question that will definitely confuse you is whether you should go for an equity-linked child plan or simple endowment plans. Both these plans have their pros and cons. Rather it depends on how you want your plan to be.  If you have 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 have an investment time frame of less than ten years, then equity-linked plans are not for you.  You can choose endowment plans 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 can be trusted. 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: The wise say, you must never shop at the first shop. Compare the child investment plans from at least 4-5 insurance companies, analyse their pros and cons, and only then zero-in on a particular insurance company.

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.