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Deferment Period under a Child Plan

People are often confused about “deferment period under a child plan”. However, this term is important to know for both policyholders and insurance companies.
Deferment periods last until one’s insured child reaches 18 years of age. During this period, the policyholder can focus on building up wealth without expecting payouts. Thus, a policyholder should choose the deferment period aligning with their financial goals. ...Read More

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Deferment Period under Child Plan

What Is the Deferment Period in a Child’s Policy?

Deferment Period under a Child Plan
October 24, 2024

Table of Content

What Is the Deferment Period under Child Plan?

The deferment period is the period from when you have purchased a plan for your child until he/she becomes the owner of it. During this period, parents must continue to pay premiums as the policy owner. Once this period is over, the beneficiary child starts receiving benefits from their child insurance policy.

When you purchase a policy for your child, you become its owner. When your child reaches 18 years, the ownership of this policy is typically given to him/her. This gap between the date of purchasing a child insurance policy and the date when a child receives the plan’s ownership is called the deferment period under a child plan.

For instance, if you purchase a child insurance policy when your child is 8 years old, its deferment period will be 10 years.

How Does a Deferment Period Work?

During the deferment period, a child life insurance policy stays active but it does not provide any benefits/payouts. After purchasing a child plan, its policyholder must continue paying premiums during this time, but the child will receive no payout or coverage. However, when the deferment period comes to an end, the grown-up child will start receiving maturity benefits at predetermined intervals.

In child plans, there are two stages of the policy term. The first is called the deferment period, and the other is the insurance period. The deferment period begins when the policy begins to its deferred date. In contrast, the insurance period starts from the date of deferment and continues till the date of maturity. Let's explore these stages more in detail:

  • The First Stage Is the Waiting Period

The waiting period is the time duration from when a policy begins and continues till the child reaches 18 years and takes ownership of the policy.

  • The Second Stage is the Coverage Period

The insurance or coverage period starts when a child is made the owner of the policy and continues till the date of maturity.

Why Do You Need a Child Insurance Plan?

A child insurance plan takes care of your child's financial future. Alongside this, the plan provides comprehensive life coverage and payouts to help your children achieve important milestones in their lives. The main aim of opting for a child plan is to create a fund to meet significant expenses during unfortunate events.

Let's look into the factors you should consider when choosing a child insurance plan:

  • Maturity Payout

The maturity benefit is the sum assured amount, along with other earned bonuses declared at the time of maturity. The maturity amount is paid to your child at certain predetermined periods as per policy term. The payouts can be in the form of a lump sum, instalments, or even a mix of both, depending on the product chosen. The maturity payout can be used to meet the child's numerous expenses.

  • Death Benefits for the Policyholder

Investing in a child plan provides financial security and stability to a child's future, even if there is a sudden death of the policyholder. However, if this unfortunate incident takes place during the policy tenure, the child receives all the death benefits – the sum assured and accrued bonuses. On the other hand, if the child is below 18 years of age, a guardian is appointed to oversee the fund until the child is 18 years.

  • Tax Benefits for Child Plans

Child plans are categorised as life insurance policies. Thus, the premiums you pay after purchasing a child plan are eligible for tax benefits. You can claim for tax deductions of up to ₹1.5 Lakh of the premiums paid under Section 80C of the Income Tax Act, 19611.

The maturity and death benefit payouts are also tax-exempt under Section 10(10D)1, ensuring your child’s funds are not eroded by taxation.

  • Financial Emergency

Creating a financial backup for your child is of utmost importance in this present-day world. When you are purchasing a child insurance policy, you are creating a financial corpus for your child and accumulating funds for their future needs.

Moreover, a child insurance policy also provides substantial support during financial emergencies without imposing any additional financial burden or stress. The sum assured of your chosen policy depends solely on the premium amount you pay along with the terms and conditions of the plan.

  • Stable Finances

By opting for a child insurance plan, you ensure stable finances for your child's future. A child plan creates a safety net and provides financial security and stability during times of need, such as meeting higher educational expenses or marriage.

Having a child savings plan assures both savings and protection during your child’s financial emergency. This way, your child will be able to deal with unexpected expenses and secure their future, providing peace of mind for you and your spouse.

Advantages of Getting a Child Plan

For providing financial support and stability for your child’s future, a child insurance plan is an ideal investment option. Here are the factors that are the benefits of getting a child insurance plan in India:

  • Maturity Benefit

The maturity benefit includes the sum assured and bonuses declared during the policy's maturity. In a child insurance plan, the policyholder or the nominee receives the maturity benefits in a lump sum amount once the policy matures.

  • Death Benefit

In case the parents paying insurance premiums pass away during the policy tenure, the insurer is responsible for paying the rest of the premiums. The child receives the full death benefit, allowing them to maintain their family's standard of living, pay outstanding debts and meet future educational and medical expenses. Also, the child insurance plan operates and provides all required benefits until maturity, ensuring the continued growth of your investment.

  • Tax Benefit

A child plan provides tax benefits to your grown-up child, which means that the maturity and other payouts are exempted from taxes. Furthermore, you can claim tax deductions of up to ₹1.5 Lakh of the premium amount you are paying for a plan. This limit is applicable under Section 80C of the Income Tax Act1. Additionally, you can claim tax exemptions on maturity benefits under Section 10(10D).

Summary

Gaining a clear understanding of the deferment period under a child plan is essential for both the policyholder as well as the insurance companies. Knowing the deferment period allows policyholders to plan their finances efficiently, as they will not receive any money from insurance companies until the child reaches 18 years.

By choosing the right deferment period, parents can accumulate wealth and grow their children's savings steadily. Alongside, planning and following a well-structured child plan also brings peace of mind to parents.

FAQ on Deferment Period Under a Child Plan

1. What is the deferment period in insurance?

The deferment period is the waiting period between the last date of paying the premium amount and receiving the actual benefits of an insurance policy.

2. What is the duration of a deferment period?

The duration of a deferment period depends on the type of loan, the condition of borrowers and the lender’s policies.

3. Is deferment a grace period?

No, a deferment is not a grace period. The grace period is a short duration after the due date when a borrower can pay premiums without penalty or policy cancellation. Meanwhile, the deferment period is when the child policy’s benefits are not payable. The deferment period is usually longer than the grace period.

4. What are the benefits of deferment?

The deferment period in a child plan ensures that your child receives a payout when they need it, enabling him or her to meet goals and enjoy financial stability in life. For this, the plan provides benefits at certain periods. For instance, a child plan could provide a substantial payout when your child completes high school, providing funds to complete higher education abroad.

5. What is an example of a deferment?

An example of a deferment is when a student is provided a deferment while facing financial hardship. Providing deferment allows them to pause their loan repayments for some time without imposing a penalty.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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1. Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

2. Provided all due premiums have been paid and the policy is in force.

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