Personal Finance
In case of demise of the parent during the policy term, these plans provide an immediate guaranteed lumpsum amount to the child along with a fixed yearly income for the remaining duration of the policy
Updated : Jan 10, 2018, 05:25 AM IST
All parents worry about their children’s future and education needs if any mishap happens with them. They constantly try to ensure the means available to meet the rising costs of education and security of their kids’ future. Taking a child insurance plan helps to secure children’s future and ensures that all their needs are met even after the demise of the parents.
Child plans are the investment for your children’s future financial requirements. They offer guaranteed lumpsum money on maturity and ensures that kids get enough amount in case of parent’s demise.
A child plan allows partial withdrawal to meet a child’s financial requirements at different educational or career intervals. Partial withdrawal is one of the best options to fund the crucial moments of a child’s life where parents choose to withdraw some amount before maturity for funding various milestones in the child's life like higher education, marriage, owning a dream house or a commercial venture or any other major goal that needs funding.
Traditional plan: Traditional children plans come in two categories: moneyback plans and endowment plans. Under moneyback plans your child will get survival benefits at regular intervals. For example, a part of sum insured when he turns 12 years, 18 years, 22 years so on. Endowment plans, on the other hand, offer a definite one-time payout after a certain period of time, making it useful to plan for your child’s big future expenses like wedding or higher education.
The premium payment towards traditional insurance plan goes towards expenses, insurance cover and low risk instruments.
Market-linked child plan: Unit-linked children insurance plans are just like any other Ulip plans with market-linked returns. The funds here range from conservative to balanced and aggressive, and the buyers can choose a plan based on their risk appetite. Just like any other Ulip plan, the charges for premium allocation, policy administration, mortality, etc, are associated with child plans, too. In the unfortunate event of death of the parent, child is given the sum assured in a lumpsum, making it a favourable plan.
The premium payment towards Ulip go towards meeting the high expenses, insurance cover and equity investments.
Waiver of premium (in-built) rider with the child plan: In case of an unfortunate demise of the parent during the policy term, these plans provide an immediate guaranteed lump-sum amount to the child along with a fixed yearly income for the remaining duration of the policy. In addition, all the future premiums due in the policy are paid by the insurance company into the policy fund, thus ensuring continuation of investment even in case of death of the parent.
Option to go for tradition or Ulip plan: However there are some issues with child plans in market. They come with high costs, rigid structure and very less control over it. Traditional children plans (which are endowment or moneyback type) mainly do not perform well on returns front and Ulip children plans come with high cost.
Option to create own child plan with a combination of term insurance and investment: One can create a child policy on his own by combining term plan and investments in some separate instrument, in a way that the term plan will take care in case of his death and investments will take care of higher education cost in case he survives. So just like you pay a yearly premium for a child policy, even in this case you will pay a fixed amount every year which will partly be invested in term insurance premium and rest will go into investments which can be either in hybrid mutual funds, PPFs and other guaranteed return debt products.
The writer is CIO, LIC Mutual Fund