What is Child Insurance Plan?

What is a Child Insurance Plan?

A child insurance plan is a special type of life insurance that helps ensure your child's financial future. It provides financial support for your child in case something happens to you, the parent. This plan includes life coverage and offers flexible payouts during important milestones in your child's life. 

The goal is to create a fund that can be used for significant expenses like higher education. In case of unfortunate events, such as the parents' untimely demise, the plan still provides financial assistance. 

Child life insurance is a combination of insurance and investment, securing your child's financial well-being. 

How Does a Child Insurance Plan Work?

A Child Insurance Plan serves two key purposes for your investment journey:

1. It provides a financial safety net for this goal in the unfortunate event of your unexpected passing.
2. It acts as a savings tool for your child's upcoming educational expenses.

Imagine you're 28 years old, and your little one is three. Your goal is to save Rs. 25 lakhs by the time she turns 18, contributing Rs. 1.5 lakhs annually for the next 15 years using a child insurance plan:

Under regular circumstances, the plan will invest your money based on your selected funds. At maturity, you might receive approximately Rs. 38 lakhs with an 8% annual return or Rs. 28 lakhs with a more conservative 4% return.

However, if an unexpected event occurs, say in the sixth year, your family would receive Rs. 18 lakhs as a death benefit. They won't need to continue contributing to the plan. Despite this, the plan continues to receive investments as intended until maturity. At that point, your family may receive Rs. 28 to 38 lakhs, depending on the achieved return.

Types of Child Plans

1. Traditional Child Endowment Plan
This Plan functions like a standard life insurance policy, providing security and savings with guaranteed returns. 

There are two types: Non-participating plans which offer fixed benefits without variable bonuses and Participating Insurance includes variable bonuses along with guaranteed benefits. 

2. Child Unit Linked Insurance Plan (ULIP)
A Child Unit Linked Insurance Plan (ULIP) lets you invest in a mix of things, including stocks, to grow your money for your child's future. This plan provides both insurance coverage and investment benefits. 

3. Regular Premium Child Plan
The Regular Premium Child Plan lets you pay your insurance premiums monthly, quarterly, or half-yearly, depending on what works best for your budget. The amount you pay remains the same for the entire time you have the plan. If something happens to you while the plan is active, your nominee gets the promised amount. If you live through the plan, you get the promised amount as a maturity benefit.

4. Limited Premium Child Plan
The Limited Premium Child Plan asks you to pay premiums for a set time, providing financial coverage until the policy term ends. You can pay these premiums monthly, quarterly, half-yearly, or yearly, depending on what's convenient for you.

Major aspects of a Child Life Insurance Plan

1. Death Benefit
When you invest in a child plan, your child's future goals stay secure even if you pass away. If, unfortunately, this happens during the policy term, the child receives the death benefit—sum assured and accrued bonuses. If the child is a minor, an appointed person oversees the funds until the child turns 18. 

2. Maturity Benefit
The maturity benefit is the assured sum along with any earned bonuses, applicable if it's a participating policy. As the policyholder, you receive this benefit, and it can be in the form of assured or lump sum payouts, or a mix of both, depending on your chosen product.

3. Payout Customization
You have the flexibility to customize payouts based on your child's needs. This can include assured payouts, a set percentage of the sum assured paid annually, or biannually throughout the benefit period. The timing and frequency depend on your chosen plan.

Some plans offer payouts after a few years following the premium payment term. Others don't have this condition. 

4. Customization Based on Your Preference and Child's Plans
You can tailor the child's plan to match your vision for your child's future. Options include flexible premium payment terms, policy durations, and various payout periods to cover all significant milestones.

5. Increased Coverage
When buying the policy, you can choose to boost the coverage by 50%, 100%, or 200% with an extra premium. If, unfortunately, you pass away during the policy term, the added sum assured goes to your nominee right away. They can choose to receive it as a lump sum or a combination of lump sum and annual/monthly income.

6. Loyalty Additions
If you've consistently paid all your premiums once the payment term is complete, certain insurers may increase your chosen sum assured by 20% as loyalty additions.

Eligibility Criteria for Child Insurance Plan

The requirements for purchasing a child plan differ among companies. Typically, you can start buying a child plan between the ages of 18 to 21, and the plan can last until you're 60 to 65 years old.

The amount you're assured to receive (sum assured) depends on the plan. Some plans have no specific minimum, while others may set it at 5 to 10 times the annual premium. For example, if your annual premium is Rs 30,000, the sum assured might be around Rs. 3 lakh.

When Is The Right Time To Invest In A Child Plan?

Most financial support is required during their graduation and post-graduation studies. This means building a substantial fund by the time your child reaches 18 is vital.

Investments need time to grow, and the earlier you start, the better. Therefore, the ideal time to begin investing in your child's education is when they are born. 

Conclusion

A child insurance plan is a specialized form of life insurance designed to secure your child's financial future. It serves as a savings tool for their upcoming educational expenses and provides a financial safety net in the unfortunate event of your unexpected passing. 

In essence, seeing child insurance meaning which provides a thoughtful and strategic way to secure your child's financial well-being, allowing them to pursue their dreams without financial constraints.