Children – a bundle of joy for their parents. When it comes to their children, parents don’t usually compromise. They want what is best for their kids, whether it is nutrition, education or career. As such, parents plan and save for their child’s future so that they can fulfil their child’s dream. But what if an eventuality puts a stop to the parents’ child planning?

Eventualities are uncertain and if they claim the life of a parent, the child’s financial future can be compromised. To avoid this compromise, you can avail a child insurance plan!

What is a child insurance plan?

A child insurance policy, often called a child education plan, is a life insurance policy designed to create a secured corpus for a child. Parents who have a minor child can opt for the child insurance policy. Child insurance plans are savings oriented life insurance plans which help you in creating a corpus for your child while allowing life insurance protection throughout the policy tenure.

Risks covered under child insurance plans

Primarily, a child education plan covers two types of risks which are as follows -

• Risk of untimely death of the parent
• Risk of the child’s financial future

Let’s understand how –

• Risk of untimely death

Under a child education plan, usually, the parent is the insured and the policyholder while the child is the beneficiary. Some plans, however, cover the child as the insured and the parent remains the policyholder.

Under either case, if the parent dies during the tenure, the child insurance policy does not get affected. If the parent was the life insured, a death benefit is paid immediately when the parent dies. Thereafter, the plan continues till the maturity date. If the child is the life insured, no death benefit is paid when the parent dies but the plan continues nonetheless.

Thus, the child education plan covers the risk of untimely death of the parent and ensures that such a misfortune does not affect the continuity of the policy.

• Risk of the child’s financial future

The death of the parent can put a dampener into the financial planning for the child’s future. If the parent is not around, who would save and create a corpus for the child?

The child insurance plan, of course!

Some child insurance plans have an inbuilt waiver of premium feature. This feature ensures premium continuity even when the parent dies. So, if the parent dies during the policy tenure, the premiums are waived off and are, instead, paid by the insurance company. This continuous premium payment ensures that the corpus for the child gets created even when the parent is not around. The insurance company contributes to this corpus creation on behalf of the parent to secure the child’s financial future. On maturity, the policy pays the maturity benefit which can be used by the child for any of its financial needs.

Child insurance plans, thus, remove the financial uncertainty in child planning when the parent is not around and secure the child’s financial future.

Salient features of child insurance plans

While child investment plans provide valuable coverage, there are some aspects of the policy which enhance the benefits which child saving plans can offer.

Have a look –

Different types of plan options

Child investment plans can be offered as Traditional Endowment Plans or even Unit Linked Insurance Plans. Both types of policies have their respective uses. Have a look –

• A traditional endowment plan can help you meet the financial needs of your child at important milestones in his/her life. You can opt for money back child plans to get funds in instalments when your child gets admitted to a college, goes for higher education, or gets married. These staggered pay-outs also create liquidity.
• A unit linked plan can help you create a market-linked corpus with attractive returns so that you can fund your child’s dreams easily.

Additional growth through bonus

If you opt for endowment or money back child insurance policies, you might also get bonus additions to the sum assured. These bonus additions increase the corpus of the policy and give you enhanced returns.

Tax benefits

Lastly, the tax benefits offered make child investment plans a tax-efficient solution for child planning. The premiums that you pay are tax deductible under Section 80C up to Rs.1.5 lakhs. The death benefit received is always exempted from tax. Even the maturity benefit received from the policy enjoys tax benefits under Section 10(10D). These tax benefits help you save taxes when investing and also get a tax-free corpus when needed.

 

So, if you are the proud parent of a child, secure your child’s future with a child plan. Understand the risks covered by the policy and know how it works. Choose a suitable child saving plan, like Aviva Young Scholar Secure, and ensure that your child’s dreams are fulfilled no matter what challenges life throws your way.

 

 

AN Feb 34/22

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