What Is a Child Insurance Plan? & How Does It Works

Child Plans provide the dual benefit of life insurance as well as investment. This policy enables the policyholder to secure their children’s future; while simultaneously building up an investment corpus to help meet the major milestones in a child’s life. In case of a child insurance plan, the parent is the policy owner while the child is the beneficiary.

If you are a concerned parent, you might already be overwhelmed with the increasing cost of education in India. With the growing inflation rates, it becomes tough to figure out as to how much to save for a child's education, starting from preschool to primary education to higher education. The need of the hour is the requirement of an insurance cum investment option which is structured to accumulate funds and allows for a tax-free withdrawal.

How Does A Child Insurance Plan Work?

To understand how child insurance plans work to secure the future of your children, you need to focus on the following features and/or benefits.

Wide range of benefits

While child plans help you create a corpus for the education of your child, these plans have several other benefits too. Some of these plans allow partial withdrawals that help to address any financial emergency. Also, some of these plans offer a waiver of premium option whereby the insurer waives off the future premium in case of death of the parent, who is the insured, within the policy term. Thus, the plan ensures financial protection of the child even in the absence of the parent. These plans can also be used as collateral for loans for child-related borrowings.

Availability of different types of child plans

Child plans are available as unit-linked insurance plans (ULIP) and endowment plans. Unit Linked Child Insurance Plans invest in markets to help your funds grow. Child ULIP plans help you generate inflation-adjusted returns.

Child endowment plans generally offer fixed guaranteed returns since they are basically ‘saving’ instruments. Based on your choice and risk-appetite you can take your pick.

Choice of pay-out

Child insurance plans may offer you two types of pay-out options – lump sum and regular. Lump sum pay-out gives you a large fund at once to address major long-term goals of your child such as higher education and marriage, which require a substantial amount of money.

Regular pay-outs ensure intermittent needs of your child such as admission fees in a new academic session, learning new skills, etc., are taken care of with utmost ease.

Essential things to lookout prior buying

Before buying a life insurance child plan, it’s important to look at the sum assured. Education costs are increasing rapidly and by the time your child graduates from high school to college, you will need a substantial amount of money. So, it’s essential to choose a sum assured that supports your child in his/her higher education financially.

Also, you need to see if the plan offers a waiver of premium option, whereby the life insurance company waives off all the future premiums in case of policyholder’s demise during the policy term. If you are choosing a Unit Linked Child Insurance Plan, check the nature of funds and understand the risks associated with them.

Conclusion

Offering a wide range of benefits, child insurance plans ensure that your child is not deprived of his/her needs even when you are no longer around.

Also Read: Child Plans - ICICI Prudential Life Insurance