Different Types Of Child Plans
Table of Contents
A child plan is a type of life insurance that helps financially secure the future of your child. It gives the assurance that the child will get the financial support from the insurance even if something untoward happens to the parents. A child insurance plan offers life cover and provides flexible payouts during crucial milestones of your child’s life. Moreover, some of the best child plans are designed keeping in mind the fact that life is unpredictable. It helps to build a corpus, which will help the parents manage major expenses related to children like higher education. This corpus can be used even during unfortunate incidents like untimely demise of parents.
Types of Child Insurance Plans
Child ULIP
The primary feature of children’s ULIPs is that they give individuals a three-pronged advantage, together with high insurance coverage, disciplined investments, and participation in the equity market. Three advantages mean that the sum assured is given to the nominee child on death of the insured parent, the future premium is waived off and the maturity value would be paid at the time of maturity, ensuring that your children’s future dreams are fulfilled.
Unit Linked Insurance Plans
The payouts at maturity of ULIPs is determined by the markets, as the funds in ULIPs are invested in equity instruments. This plan is good for longer tenures (more than 10-15 years) of policies. Insurers may provide the option of choosing between different investment funds, allowing you more control over the money you have invested. Some dynamic plans are also available where the profits may be transferred directly and automatically from equity to debt instruments.
Traditional Endowment Plans
These policies provide stable returns in the form of bonuses over the sum assured. In general, bonuses on traditional plans are paid from 2nd year onwards, and you can check if the bonus is in cash or if a reversionary bonus will be compounded or have simple interest.
Eligibility Criteria
The eligibility to buy a child plan varies from company to company. The usual entry age to buy a child plan is 18 to 21 years, and the maturity age can be up to 60 to 65 years.
The sum assured also varies according to the plan. While some plans have no minimum criteria, others have criteria of at least 5 to 10 times of the annual premium amount. This means that if the annual premium is Rs 30,000, the sum assured is approximately Rs. 3 lakh.
How does Child Plan Function?
Let us look at the basic working of child plans:
- Child Plans are generally designed to serve two purposes together – of an insurance product and of an investment tool. The product provides financial security to your child at all crucial stages of his/her life
- If you buy the plan, you will be the policyholder, while your child will be the nominee. However, in your absence, the insurance component ensures that your child, being the nominee, receives a substantial amount of money to be able to manage his/her finances seamlessly
- Talking about the investment component, it helps to build a substantial fund to accumulate enough money to meet the necessary expenses in future like travelling abroad for higher education, getting admission and paying fees for a university abroad, marriage or setting up his/her own business.
- With guaranteed financial stability, the parents will be able to concentrate on other aspects of their child’s growth and development.
Conclusion
With child plans you can claim deductions in tax under Section 80C of the Income Tax Act. Also, you can claim tax exemptions under Section 10(10D) on the returns you get. Here, if the premium paid in any year does not exceed one-tenth of the basic sum assured, you can claim tax exemption for interest earned on the investment.
