Secure your Child’s Future with a Child Insurance Plan

As a parent, your life's crucial goals is to provide your children with a secure and happy future. We all want to empower our children to lead their lives comfortably. However, the beauty of life is that it's uncertain, and we can never be sure what life will throw at us. The best way to secure your child's future is by helping them achieve their goals and aspirations.

This is where child insurance plans come into the picture. These plans help you secure your child's future by saving for their dreams and aspirations. Whether your child wants to go for overseas higher education or pursue his/her entrepreneurial dreams, a child insurance plan gives you the financial backup to make all your child's future dreams come true.

How does a child insurance plan work?

In a child insurance plan, the policy owner (i.e. the parent) pays premiums for a specific period – monthly, quarterly, half-yearly, annually or a single payment. At the end of the policy term, which is usually around the time the child goes for higher education, the insurer provides a lump sum amount called the maturity benefit. You can use the maturity benefit to pay for your child's higher education or any other future needs.

In case of an unfortunate event like the death of the premium paying parent, the insurer offers a life cover amount to the nominee (the child). Additionally, the insurer also waives off future premiums for the remaining policy term. The best part – your child continues to receive the maturity benefit at the end of the policy term, thereby ensuring that your child’s future is always secure.

Let’s explain the working of a child insurance plan with an example. Consider the case of Mr Shah, who has taken a child insurance policy for his 5-year-old daughter. He chooses a policy term of 12 years and decides to pay the premium annually.

In the unfortunate case, Mr Shah passes away in the 5th year of the policy, his nominee (i.e. his daughter) receives the entire life cover amount. Also, if he has chosen the future premium waiver rider, all future premiums are waived off, and the policy continues to exist. In the case Mr. Shah survives the policy tenure and pays all premiums regularly, he will receive the maturity benefit at the end of the policy term, i.e. when his daughter turns 17. He can choose to accept the entire maturity benefit as a lump sum payout or receive it in parts for important milestones of his daughter's life like – under graduation, higher education, marriage, etc.

Additional Reading: What Are the Different Types of Life Insurance Policies?

Top 5 Reasons to Invest in a Children’s Insurance Policy

Build a Corpus for your Child’s Higher Education

There’s no denying the fact that education costs today have sky-rocketed in the last few years. By the time your child grows up, education costs would have increased further, making it impossible to pay the fees out of your savings alone.

With a child insurance plan, the premium you invest in it is returned as much as ten times. You can use the lump sum amount to pay for your child’s educational needs like higher education at a prestigious overseas university.

Meet Medical Demands

As mentioned above, life is unpredictable. You can make partial withdrawals from a child insurance policy to meet the emergency medical needs of your child like – treating an ailment, accident or a critical medical condition.

Helps to Support your Child, even in your Absence

In the unfortunate case, if something were to happen to you, your child’s future goes for a toss. In such cases, a child insurance plan comes to the rescue of your child and surviving partner, as the insurance company offers a premium waiver along with a life cover. The premium waiver option is usually available as a rider (add-on benefit) to the plan. It ensures that the policy continues, in the unexpected death of the parent during the policy tenure.

It can act as Collateral for Securing Child Education Loans

Increasing education costs is forcing more and more parents to rely on higher education loans. While obtaining a higher education loan, you have to provide collateral. A child insurance plan acts as security, thereby increasing your chances of securing the loan.

Tax Benefits for the Parent

Investing in child insurance plans offer tax benefits for the premium paying parent. The premiums paid are eligible for tax deductions under Section 80C of the Income Tax Act. Additionally, the sum received on maturity also qualifies for tax benefits under Section 10D of the ITA.

Who should buy a child insurance plan?

A child insurance plan is highly recommended for:

Parents who have children aged between 0 and 15 years
Parents who want to build a corpus for their child’s future – education, marriage, business, etc.
Parents who wish to build a large corpus that beats inflation with regular investment

Benefits of Child Insurance Plan in a Nutshell

Offers financial security to meet the crucial milestones of your child’s life
Helps you build a corpus for your child’s future beating inflation
Savings + life cover in a single plan
Safeguards your child’s future, even in the unfortunate case of a parent’s demise
Inculcates the habit of long-term savings
Tax benefits, maturity benefits and loan benefits

Things to Know Before Investing in a Child Insurance Plan

Flexibility of Pay-outs

Child insurance plans offer two options for payouts – lump sum and regular payouts. In lump sum option, the policyholder receives the entire maturity benefit as a bulk amount at the end of the policy tenure. You can use the lump sum to meet significant goals in your child's life like paying for higher education, marriage, etc.

In the regular payout option, the policyholder receives regular payouts at fixed intervals for the entire policy tenure. It can help meet intermittent needs of your child like school tuition fees, coaching fees and more.

Partial Withdrawals are Permitted

One of the biggest advantages of child insurance plans is that it permits partial withdrawals. It can help you meet emergency needs like medical care for the child and so on.

Opt for the Waiver of Premium Rider

This is an add-on benefit that you can choose during policy inception. With this rider, all future premiums are waived off in the unexpected death of the parent during the policy tenure. The insurer pays all future premiums, and the policy continues to exist.

Life Cover is Available

Besides maturity benefit, child insurance plans also offer life cover if the premium paying parent passes away during the policy tenure. It helps in providing your child and spouse with financial assistance during a crisis.

Additional Reading: What is Group Insurance Policy?

Types of Child Insurance Plans

Child insurance plans are of two major types. They are:

ULIPs (Unit-Linked Insurance Plans)

It's an insurance plan cum investment option. In this plan, a part of your premium goes for securing your child's future (just like in a regular insurance plan), the rest is invested in equities and debts. ULIP child insurance plans have higher risks but have the potential to offer higher returns as well.

Child Savings Plan

It’s a regular child insurance plan that allows the policyholder to invest without any market risks. You are assured of a guaranteed sum on maturity along with a fixed life cover.

Top 5 Child Insurance Plans in India

1. Max Life Shiksha Plus Super

The Max Life Shiksha Plus Super Plan is a unit-linked, non-participating, individual life insurance plan that helps to meet your child’s future needs. You can choose from six different fund options – government securities, cash instruments, bonds and equities based on your requirements.