Child insurance plans are useful additions to the investment portfolios of parents. While you may be worried about your child’s future financial requirements, including higher education and other costs, you should start saving up as soon as you can. Planning for the future and building a corpus for your child is the best way to tackle these anxieties.
A child insurance plan aims at ensuring a regular and predictable flow of funds when a child decides to pursue undergraduate/postgraduate education. Another main goal is to ensure suitable financial assistance when the parents are no longer around. These plans will ensure that the education of the child is not compromised in such circumstances.
Why a Child Insurance Plan is The Best Option
● Building a corpus for the future of your child- You can start investing in these plans for ensuring a brighter and more sustainable future for your child. You may choose a lump sum payout at the conclusion of the payment tenure or periodic inflows of funds. This may be from the time your child attains the age of 18 or begins higher education. If the child receives a guaranteed sum assured with accumulated bonuses, it may be used for future needs including further education, wedding expenditure, and more.
● Ensuring that your child is well-looked after- In case of your unfortunate and tragic demise within the policy period, the child will get the sum assured amount. The policy’s investment component will continue as well, with the insurance company paying the premiums. A majority of child insurance plans ensure sum assured amounts which are a minimum of ten times the annual premium. The fund value will be paid out at maturity as well.
● Partial withdrawal facilities- Child insurance plans offer partial withdrawal provisions, with sufficient flexibility for investors. Contingency and unforeseen expenditure are never predictable, and you can leverage partial withdrawals for taking care of the same.
● Loan options for emergencies- In case of financial emergencies and other sudden situations, you can take a loan against these policies for covering your expenses.
What you Should Check Before Investing in a Child Insurance Policy
You should take a few things into account while buying a child insurance plan. These include the following:
● Payout options- You should check the available payout options on offer with your child insurance policy. There are policies that offer pre-determined percentage payouts at varying stages.
● Maturity benefits- Check the extra benefits at the conclusion of the policy tenure along with the guaranteed annual additions and loyalty additions on offer. Also, examine the clauses for nominees getting their fund values even after receiving their sum assured amounts upon the demise of their parents.
● Rider Options- Riders often enable helpful lump sum payouts for accidents or any other critical ailments which are defined. These are often beneficial in case of a health emergency.
● Loan collateral- In case your child wishes to pursue higher education at a leading institution abroad, there will be a sizable financial involvement despite the availability of scholarships and so on. Education loans are sanctioned more easily by NBFCs and banking institutions with some collateral. Insurance plans like these may be given as collateral for this purpose.
● Premium Waiver Benefits- For some child insurance plans, insurance companies waive off the payable premiums in the future in case of any disability or untimely death. The policy will continue in both these scenarios, while the nominees obtain the fund value at the conclusion of the policy duration.
Along with ascertaining the above-mentioned factors, you should also ensure that you invest on the basis of your tolerance for risks. You should account for your lifestyle desires, financial objectives, and other commitments. The child insurance plan should enable investments in the manner that you desire. You should also get an idea of the applicable tax benefits. Most of these plans will ensure deductions up to Rs. 1.5 lakh annually under Section 80C for the premium payments. The maturity proceeds and withdrawals from the policy will also be free from taxes. You should examine your child’s policy closely to determine whether the tax benefits apply to the same or not.
You should ideally invest in the child insurance policy from the time of your child’s birth. You can select from either child ULIPs or endowment plans. It is always best to start as early as you can, in order to maximize the benefits and enjoy greater peace of mind.