There are a number of child insurance policies in the market, which provide Risk cover as well as financial security. A child plan is usually of two types -- a traditional endowment money back plan and a unit-linked plan that is based on performance of the capital market.
Under the money-back plan, a certain amount of the sum Assured is given back to the Beneficiary in installments on the survival of the Policy holder throughout the Term plan. On death of the life assured, the nominee – generally the child – gets back the Death Benefit which is equal to the Sum Assured and Bonus points or cash accumulated during the period. This amount is irrespective of the amount of Survival Benefit he or she has got till now. In short, it is an Endowment Plan where there is death benefit as well as survival benefit. Traditional child plans have a moderately high Premium than the whole-life plans but less than unit-linked plans.
Unit linked insurance policy (ULIP) is an investment linked policy where premiums are invested in the capital market. On death of the life assured, the death benefit equal to the sum assured and profits generated from the performance of capital market or the Fund Value is given to the beneficiary. ULIPs have a high premium rate and risk or losses in the capital market are borne by the policy holder. Let’s check out some of the useful features of child insurance plans available in the market and how to buy a child plan that is profitable.
Useful Features in a Child Plan
- A useful child plan provides risk protection as well as money-back benefit.
- Bonuses and Loyalty Additions associated with the child plan would make it an investment policy.
- Tax benefit under section 80C of the Income Tax Act available for paid premiums and benefits earned from plan would make it tax-free investment income.
- Flexibility in withdrawing funds for the child’s education would help a parent when funds are really wanted.
Reviewing Features in a Plan
Some features in a child plan may seem to offer huge funds for the child. However, you may be exceeding your family budget in the process of getting the amount. It is also necessary to review whether you can withdraw money when required for the child. Here are some features of a child plan which must be reviewed realistically before being purchased.
Premium Vs Family Budget – Insurance plans with investment options naturally incur a high premium rate. Is it possible for you to manage your daily family expenses and pay a high premium as well? ULIP plans for instance, are sold in the market with options that these pay lump sum amount during various stages of a child’s education. However, premiums can be often unrealistic for some families with moderate earning capacity.
Riders – A lucrative child policy would have various Riders attached to it. However, riders would incur an additional premium. A best child plan would be one where the riders are in-built. In such a case, no extra premium is required to be furnished.
Premium Waiver inbuilt rider available with plans are a convenient feature. Here, the child would get the survival benefit, death benefit while future premiums would be waived in case the parent dies before the policy term plan.
It is often necessary to withdraw funds prematurely. The best child plans
would ensure that it is possible to do so. The amount should also suffice the education expense of the child. Based on this amount and expected premium to be paid for the policy, one must decide whether the plan provides value for the money invested in the policy.