Reasons to invest in a child insurance plan

Wanting the best for your child is very natural. For every parent, the primary concern lies in ensuring that their kids have a secure and better tomorrow. This involves being able to give your child the best possible future and have all the necessary financial support during all the major milestones of their lives –education, lifestyle, marriage and so on. But to achieve this, one should have a clear cut plan about how to provide for the same.

Why it makes sense

Typically, your financial planning starts off with goals in your mind. As wetalk about priority goals, child planning is sometimes even a shade above retirement planning. Yet, many of us leave it to the last minute, while others tend to bank on a half-baked plan. However, with the help of some careful forward planning, you can ensure the futureof your child. With the skyrocketing cost of education, funding yourchild’s education is a hot topic today. So, for starters make an estimate of when your child will go to college and plan accordingly. College education for your child in a good institute can set you back by approximately Rs 20-30 lakh. These are the current costs, so you need to first draw how much the education will cost 12-15 years down the line. And a wedding that costs Rs 25 lakh today, would cost nearly Rs 70 lakh 21 years from now at an assumed inflation of 5%.

Taking a child insurance plans helps to secure your child’s future and ensures that all your child’s needs are met even after you are not around. The beauty of investing in a child insurance plan is that it continues even after the demise of the policyholder. The plan comes with the waiver of premium feature where the insurance companies takes care of future premiums and creating fund of the desired amount.

Waiver of premium

Almost all child plans work on the same structure where you need to first choose a child plan from any of the life insurance company and then start paying a premium as per the plan structure andon the promised maturity day, you will receive an increased sum of money (maturity fund) using which you can meet the financial needs of your kids like education. But, does the basic plan will achieve the desired fund   or your child’s future? If not, then child plan with waiver of premium is the solution for you.

Unlike any other insurance plan, a child plan with waiver of premium (in-built) rider is a unique solution because it even continues after the death of the policyholder. And the benefit doesn’t just stop here. The insurance company keeps the plans active and continues to fund the policy by paying the remaining premiums and monthly income. 

How it exactly works?

A parent can start investing within 60 to 90 days of your child’s birth to accumulate larger sums which may not be possible in later stages of life.

For instance, Sharma choose a child insurance plan with a policy term of 10 years where he paid Rs 1 lakh premium annually. However, during the second policy year Sharma dies in an unfortunate event. Total premium paid is Rs 2 lakh. As a result, Sharma’s nominee receives alump sum of Rs 10 lakh or 105% of the total premiums whichever is the highest. However, if it was a basic child plan it would have ended here. But, Sharma opted for plan with inbuilt waiver of premium where the pending premiums will be taken care by the insurer itself and the nominee is now eligible to receive monthly income of Rs 8,300 for 8 years which is Rs 7,99,680. Also, in the end the nominee receives a lump sum of Rs 14,35,771 at an assured investment return of 8%. 

The writer is chief business officer, life insurance, Policybazaar.com