What Are Child Insurance Plans and How Will They Benefit Your Children?

It goes without saying that parents want the best for their children. That includes providing for their future education or equally important, providing for their important milestones. One of the best ways to secure future financial support is by investing in a child insurance plan.

Planning for your Child's Education 

With the rising costs of education, it’s becoming more crucial than ever to secure the finances required to pay for your children’s future education. Opting for a child insurance plan will enable you to build a corpus that can be used as your child needs it or as a lump sum.
If you invest in one of these plans at an early stage of your children’s school careers, you’ll be assured of having the necessary funds required for whatever educational path they choose.

What Is Child Insurance Plan?

Essentially, child insurance plans are investments that allow you to provide for your children’s futures. They serve two fundamental purposes.
The first is to financially secure your child’s future in the event of something happening to you. Secondly, this type of insurance enables you to secure the important miles stones in your children’s lives. These would include college, marriage or even creating a business.

Types of Child Insurance Plans

• Unit Linked Insurance Plans

Commonly referred to as a ULIP for short, this type of plan is made up of a savings and investment plan. That means you’re looking at a combination of investment opportunities plus life cover. In these instances, the premium is split to pay for the investment and life cover separately..

• Traditional Endowment Plans

This type of insurance policy generally refers to policies designed to payout lump sums on the death of the policyholder or maturity of the policy. These insurance plans are well-suited for families who want to provide for their children’s future in their absence. Additionally, these plans provide stable returns in the form of bonuses

• Single-Premium Child Plan

A single-premium child plan refers to a type of policy where the policyholder pays the policy in the form of a single premium. This is beneficial because there’s no need to remember dates or find funds to keep paying the policy.

• Regular Premium Child Plan

Unlike the fixed premium offered by a single-premium policy, a regular premium child policy offers the policyholder flexibility on the premium. As with the other policies, the full premium can be paid monthly, quarterly or annually.

How does a Child Insurance Policy Work?

• Future Financial Need For The Higher Education Goal of Your Child

Investing in a child insurance policy provides you with the financial discipline to set money aside for your child’s education goals. It gives parents peace of mind knowing that their children can pursue their career goals without wondering where the finances will come from.

• Need For The Financial Protection of this Goal From Your Untimely Death

Insurance for children also enables parents to secure the money that has been set aside for their children. In the event of a parent or policyholder’s untimely death, the money in the investment will be protected to still ensure the educational goals of the children are still met.

• Lump Sum Amount on Maturity

Some types of child insurance plans are set up to payout a lump sum on the maturity of the policy. If the insurance plan is for your child’s education, they may be set up to coincide with the end of their school career. The policy will then mature as they need to make provisions for the next educational phase.

Benefits of Insurance Plan for Children

• Financial Protection

Child insurance plans provide your children with the financial protection needed to achieve their educational goals. Additionally, plans can also help them cover the costs of milestones such as marriage.

• Boost to The Growth of the Investment

As the premiums are paid, the investment grows. Policies can also include loyalty additions as well as specific bonuses for long-term investors.

• Lump Sum Amount on Maturity

When the insurance plan matures, the whole policy is paid in the form of a lump sum. This makes it very easy to cover the full (or a large bulk of the) cost needed for education or the milestone you need to pay for.

• Partial Withdrawals

Depending on the insurance plan you have opted for, your policy will be eligible for partial withdrawals. This is beneficial to your children as they progress through school toward reaching their educational goals.

• Tax Benefits

According to Section 80C of the Income Tax Act of 1961, all child insurance policies allow for tax benefits on the registered premium. Additionally, there is also a tax benefit on the income and maturity amount from the plan up to Rs. 1.5 lakhs per year.

How a Child Insurance Plan Will Secure Your Child's Future?

• Provides Financial Security

As a parent, it’s important to secure your children’s future. Investing in a child insurance plan creates financial security to ensure your children’s educational goals.

• Perfect Blend of Investment and Savings

Opting for a policy that provides both investment and savings has a double benefit. Savings can easily be set aside to finance milestone events while investments cover any future educational costs.

• Safeguards Child's Future

Since no one can predict the future, there’s no way of knowing what financial situation you might find yourself in the future. A child insurance plan will safeguard your child’s future, irrespective of what your financial situation may be at the time.

• Favours Disciplined, Long-Term Savings

It isn’t always easy to save money for events planned for the distant future. That said, investing in a child education plan is an excellent way to create long-term savings.

Is Child Education Plan Tax-Free?

• Deduction of Invested Amount

As per Section 80C of the Income Tax Act 1961, premiums up the amount of Rs. 1.5 lakh is tax deductible.

• Partial Withdrawals

When it comes to partial withdrawals, there is a clause to the tax paid. If the premium payable doesn’t exceed ten percent of the Sum Assured/Death Benefit, the partial withdrawal is exempt from any tax payments.

• Maturity Proceeds

Policyholders won’t be required to pay any taxes when they or policy nominees receive a maturity benefit from a child education plan, subject to the conditions under Section 10 (10D) of the Income Tax Act, 1961.The condition for tax exemption is that the policy premium does not exceed 10 percent of the Sum Assured/Death Benefit.

• Death Benefit

According to Section 10 (10D) of the tax law, death claim benefits are tax-free. This means that the policyholder will receive the entire sum without being required to pay any taxes.

How to Choose the Best Child Insurance Plan?

• Goal & Age

When you’re considering the best child insurance plan, it’s crucial to keep the future goal and age of your child in mind. For instance, if your child is still young, you will have ample time to ensure the finances are secured for their educational goal.
However, if the child is older, the period to secure the goal is considerably less. In this instance, you will have to choose a plan that will help you reach the goal.

• Investment Options

For child education programs, there are usually two types of investment options.

• ULIPs: These plans are better for long-term investments, allow you to invest in equity funds and yield the highest returns.
• Guaranteed plans: Often regarded as a safer option, guaranteed plans tend to offer more investment options

• Check the Pay Out Methods

This applies to your goal of using the funds for tertiary or higher education. Since these costs are not a one-time expense, it’s necessary to check how the payout will be made. It may be necessary to arrange for annual payouts to cover each year of education.

• Check the Cost & Past Performance of ULIP Funds

Essentially, payouts of ULIPs are regulated by the market at the time of the policy’s maturity. That makes this the ideal option for long-term goals.
With a variety of investment funds, it’s possible to receive more than you initially invested. Checking the history of the ULIP will ensure that you receive the maximum payout possible.

• Check the Claim Settlement Ratios

The claim and settlement ratio provides you with a general idea of the insurance company’s process. A good claim settlement ratio of 95 percent and upwards is the general standard in India.

Why Buy Child Education Plan?

A comprehensive education can be expensive. There is also no telling what your financial situation will be like when it’s time to start choosing colleges or universities for your child.
Opting for a child education savings plan will ensure your child’s financial needs for education are secured. Additionally you, as the policyholder will also benefit from safe investments, loyalty additions, tax benefits and life cover, ensuring that your children are provided for.

Conclusion

Taking care of your children daily goes without saying. Opting for a child insurance plan will ensure that your children’s future goals, dreams and milestones are met. Regardless of the financial circumstances, you’re in when they’re older, a child insurance plan will give you peace of mind that there’s money available for their milestones.