Child plan is a kind of insurance plan that serves two benefits at one go. It provides investment opportunity as well as insurance benefits at the same time. Since it is specifically made to meet the financial needs of the child, its features encompass the requirements of the child that may occur in his future. It is similar to any other kind of insurance plan but the difference lies in how it provides benefits.
When you as a parent invest your savings in a child plan, you have to consider various parameters to have the best child plan. You have to consider your age, your child’s age, your financial plans for your future and your child’s future financial needs. The basic purpose of buying a child plan is to ensure that your funds what you save for your child provide financial support to your child when he will need it. Another important motive is to ensure security of your funds and to get life cover. When you want to buy a child plan, you will have to take into account the number of years you want to invest for. You can determine this number by deducting the present age of your child from the number of year when he will require your financial support. For instance, if your son is 5 years old and you are planning to send him abroad for studies when he will turn 20, you should buy the child plan for 15 years.
Child plan comes in two variants- traditional and market-linked child plan. You choose one of the mentioned plans according to your age and risk taking capacity. If you are a young parent and have a longer horizon and have the risk taking capacity you should go for the market-linked child plan. Otherwise, the former one is a better option for you.
Lifetime annuity: You receive a fixed amount of annuities for a lifetime period. In case of your unfortunate demise, your nominee receives the purchase price plus bonus accumulated on it, if applicable.
Guaranteed period annuity: This plan provides annuities for a guaranteed number of years that you choose while buying the plan. In case, the insured is suffering, the nominee receives the payment. In case, the insured continues living, he keeps receiving the annuities for the rest of his life.
Annuity certain: Annuities are received by the insured for a determined number of years. In case of insured’s death, annuities are received by the nominee till maturity.
Joint life/Last survivor annuity: The insured receives annuities, in case he dies, his nominee or joint life continues to receive annuities for the lifetime period.
Since you are investing funds especially for the child and for a longer term, you should not ignore possibilities of unexpected events like death. The insurance element in the child plan provides risk of death of the earning parent. In case something happens, the insurance company waivers rest of the premiums and provides sum assured to the child when the policy matures. The pattern of receiving sum assured at the time of maturity or death (as the case may be) is determined by the proposer at the time of signing the insurance documents. This is either one-time lump sum payment or in slots at various stages of the life of the child.
• It provides investment opportunity and insurance benefits simultaneously.
• It ensures the child receives the financial support when in need.
• It provides optional additional benefits like waiver of premium (generally built-in), critical illness rider, accidental death and disability rider, comprehensive health benefit rider, income benefit rider etc.
• The parent has the flexibility in payment options.
• It provides safety of invested funds.
• Sum insured to be received at the maturity/death can be availed in slots or in lump sum.
• It provides facility to avail loan against the premium paid for the plan.
• It provides tax benefits u/s 80C and tax exemptions u/s 10(10D).
• The best child plan is the one that is bought at the right time that is, when your child is just born or in schooling years. This ensures your funds get appropriate time for better turnaround.
• Always consider your requirements, budget and risk taking capacity before buying the child plan. The reason being, every insurance plan has a certain lock-in period before which you cannot opt-out. Not taking right decision, right at the beginning can lock your funds for a certain number of years.
• Determine the type of your need. Never buy in haste. Always consider the good points and bad points of the insurance plan you are planning to have. Every child plan has various benefits. Check which kind of features and benefits offered will serve your financial needs in the best way.
• Plan ahead. Discuss with your family about your plans for your child. That is, whether you want to accumulate for his studies or new venture or both. This will help you to decide the amount of sum assured as well as the period for which you want to invest.
• Choose riders carefully. Every rider is a kind of benefit offered with the base policy but each one has its own price. Also, if a rider is beneficial for one, doesn’t it mean will suit others also. Therefore weigh each rider against your needs and circumstances.
• There are many companies that offer online child plans. Do consider them before buying from traditional sources as they can provide you additional features at no cost along with 20-30% discount.
We all want our child to study in best school, to go to the best college (probably abroad), have the grandest wedding in town but nothing in this world comes for free. Everything involves cost and in the presence of demon like inflation, this money demand only keeps on increasing. For example a 2 year MBA in premier institute like IIMs of India used to cost around 2 lacs 8 years ago, today it hovers anywhere between 12 to 20 Lacs (depending on institute). Hence, in the context of Indian culture where parents strictly take responsibilities of their child development, it becomes a necessity to invest for their future so that at appropriate junctures, one can get financial support.
You should buy a child plan to ensure that your child’s financial needs at the later stage of his/her life are fulfilled whether you are around or not. Not just this, you get the opportunity to invest and accumulate your funds according to your preferences. That is, you can buy traditional plan or market-linked plan. You are able to make goal-based savings and beat inflation at the same time.
You should buy a child plan as and when your child is born. This will ensure you get maximum time to accumulate funds and interest on it. If you did not buy it at that time, plan for it now. The earlier you start the better is the return on your investment.
Your choice of plan depends upon your individual financial profile. If you can bear risk and have better time span, then you should buy Unit-linked child plan. However, if you do not want bear market-linked risk and want to get fixed returns on your investments, you should buy traditional child plan.
Yes, the premium paid towards child plan is exempted from tax under section 80C of Income Tax Act 1961.