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Types of Child Insurance Plans

A child insurance plan is an important investment that life insurance companies offer to investors to secure their children’s financial future. Alongside, insurance plans help you save more to meet your child’s educational expenses, considering the risk appetite and financial objectives. ...Read More

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Types of Child Insurance Plans

Overview of Types of Child Insurance Plans

Types of Child Insurance Plans
October 18, 2024

Table of Content

 

Are you worried about your child’s financial well-being? Opt for a child insurance plan that plays a vital role towards supporting your child's life milestones, such as education expenses and marriage. Being a parent, you will want to secure your child's future by planning your finances. Child insurance plans, in this regard, offer a bright future with comprehensive coverage and flexible payout options.

Continue reading to learn about child insurance plans, types of child insurance plans, features and more.

What Is a Child Insurance Plan?

A child insurance plan is an important investment that life insurance companies offer to investors to secure their children’s financial future. These plans offer financial coverage and benefits in the life of a child, irrespective of their presence. Thus these plans play a crucial role in safeguarding children's dreams against unforeseen events.

Alongside, child savings plan help you save more to meet your child’s educational expenses, considering the risk appetite and financial objectives. Through annual premium payments, you can build up long-term savings while enjoying tax benefits. Thus, combining insurance and investment products, a child savings plan also helps you achieve big goals for your child that include marriage or covering educational expenses overseas.

Different Types of Child Insurance Plans

Here is a detailed overview of the different types of child insurance plans:

  • Child ULIP

ULIP (Unit Linked Insurance Plan) for children provides comprehensive coverage for a child's education. Availing the benefits of both insurance and investment opportunities with this plan, parents can secure their child's future.

Choosing the right type of ULIP plan is essential to start investing in a child's future and achieving the desired financial goals and objectives. ULIP plans provide life insurance coverage while investing in equity, debt or balanced funds, which helps to build wealth as per your risk appetite and investment goals. By opting for this insurance and investment plan, you can save a corpus to cover your child's education expenses in the future.

  • Unit Linked Insurance Plans

Unit Linked Insurance Plans let you invest a significant portion of your premium in market-linked funds. The returns on investment are much higher than the amount invested. By securing this type of plan, you get a wide range of options to choose from according to market trends.

Because of the investment risk involved, it is essential to analyse the risk profile of individuals before proceeding to invest. This plan is ideal if you are looking for a long tenure like 10-15 years.

  • Traditional Endowment Plans

If you are looking for your child's long-term financial planning, opt for traditional endowment plans. Endowment plans offer guaranteed3 income over the sum assured. It offers both investment benefits and protection during times of urgency. Having an endowment plan ensures financial security for the future of your child.

You can opt for flexible premium options that include payment of premiums, switching between funds, and rider1 benefits.

  • Single-Premium Child Plan

Opting for a single premium child plan offers financial security to your child's future and protects them from any unfortunate incident. Thus, it provides dual benefits for children i.e. financial protection and savings. In this plan, premiums are paid out in lump sum amounts at the beginning of a plan.

Alongside, these plans offer the facility of partial withdrawal during important stages of a child's life. This makes it easy to manage bigger expenses in future such as higher education for your child and marriage.

  • Regular Premium Child Plan

With a regular premium child plan, policyholders need to pay premiums each year and keep an eye on premiums to avoid getting missed out. Because the premiums are paid out monthly, yearly, or half yearly, it is affordable for a large section of society.

Moreover, under Section 80C of the Income Tax Act 19612, premium deductions are available, which thereby leads to tax savings every year.

Features of Child Insurance Plan

The distinctive features of child insurance plans are as follows:

  • Additional Riders

There are certain riders1 which offer benefits more than what a simple life insurance policy offers. Besides the ones mentioned below, insurance plans for children offer surgical care riders1, which offer a fixed sum for the child’s hospitalisation and hospital care riders1, which provide a fixed hospital cash benefit. Some plans also provide additional child support benefits in addition to the maturity benefit.

  • Coverage for Accidental Death and Disability

By opting any basic child insurance policy, you can avail death benefits for your family. Alongside, an accidental death riders1 also offers additional, comprehensive coverage of death benefits to your family in the case of your sudden and unfortunate demise.

  • Premium Waiver Benefit

With a premium waiver benefit, the insured person is no longer responsible for paying the due premiums when the earning member dies. The child thus remains stress-free from paying premiums and enjoys all benefits that come with the policy.

  • Critical Illness Rider Benefit

Because of our sedentary lifestyle and consumption of junk foods, health issues such as cardiovascular disease, cancer, heart attack, and others are predominant. For all these diseases, medical treatment is expensive, which means the treatment might exhaust all your savings.

In this scenario, a Critical Illness Insurance is essential to help you financially when you are diagnosed with any life-threatening illness.

Advantages of Child Insurance Plan

Child insurance plans come with several advantages. Thus, before deciding to opt for a child insurance plan, make sure to go through the benefits of child insurance plan it offers:

  • Financial Protection for Children

Child insurance plans offer financial protection for children and cover expenses after any unfortunate event. Parents must select a plan with a suitable sum assured and additional benefits upon maturity. Moreover, by opting for investment fund options, you can save for your child's education in future.

  • Boosts Investment Growth

By opting for a child education plan, you can enjoy loyalty additions and bonuses. This is ideal if you are a long-term investor. The more you invest in the long term, the better the outcome will be.

  • Tax Benefits

Being a parent, you will want to completely secure your child’s future by investing in a child insurance plan. Apart from providing financial security, these insurance plans also offer tax-saving benefits under Section 80C and 10 (10D) of the Income Tax Act 19612.

However, under Section 80C of the Income Tax Act, 19612, you are eligible for claim deductions up to Rs. 1.5 Lakhs for paying premiums of child insurance.

  • Death Benefit

A child insurance plan is one way to provide financial stability for children. In case of your untimely death, the child receives a lump sum amount as a death benefit. If your child is a minor, the amount will be in the safe custody of a guardian till he/she attains majority. 

  • Maturity Benefit

If you invest in a participating policy, you receive a maturity benefit at the end of the policy term. The maturity benefit includes the sum assured and the accrued bonuses. Depending on the plan chosen, it can be an assured benefit, monthly payment, or a combination of both.

  • Customizing Payouts

You can choose the payouts depending on your child’s needs. It can be a percentage of the sum assured either half-yearly or yearly or a lump sum payout either on maturity or as a death benefit. It can also be a combination of sum assured and lump sum payouts. Even periodic payments for recurring expenses are also permitted. 

  • Adjusting Plans to Fit Your Preferences and Your Child’s Future

The purpose of investing in a child education plan is to cover all the significant milestones of your child. The plan can be customized to match the financial goals set for your child. It includes the premium payment option, policy term, and payout frequencies to align with the various goals. For instance, if you need a lump sum amount on maturity, you can choose an endowment plan.

  • Loyalty Bonuses

Regular premium payment is crucial to keep the policy alive. Another benefit of paying premiums within the deadline and without a break is the loyalty bonus provided by some insurers.  

Child Insurance Plans Eligibility Criteria

The eligibility criteria for child insurance plans vary depending on the insurance company. The following are the general eligibility criteria for investing in the plan:

  • The minimum entry age is between 18 to 21 years, and the maturity age is between 60 to 65 years.

  • The sum assured depends on the plan chosen. Some plans do not have a specific amount, whereas, in sum, it could be 5 to 10 times the annual premium. 

When is the Best Time to Invest in a Child Plan?

The best time to invest in a child plan depends on your vision for your child’s future. If a reasonable corpus is required to fund your child’s graduation and higher studies, the policy term should align with the goal. It means you should have sufficient funds by the time your child is 18 years old. 

A long-term investment will reap higher returns. Ideally, you should start investing as soon as your child is born to give ample time for the investment to grow.

Summary

To conclude, a child insurance plan is specifically designed to secure your child's future expenses. It is an important savings tool to meet educational expenses during any unforeseen circumstances. This plan also allows your child to pursue a dream without facing any financial constraints.

Moreover, being a parent, it is both a responsible and convenient decision to add a child riders1  to your chosen life insurance policy. However, make sure to go through the benefits, opportunities, and premium payments of the riders1 before making the decision.

FAQs on Types of Child Insurance Plans 

1. How can I save money for my future child?

You can save money for your future child through the following methods:

  • Evaluation of future needs of children
  • Start opting for insurance plans early to save more
  • Consult an expert financial planner

2. Which type of insurance policy can be used for child education?

A child ULIP insurance policy is suitable for opting for child education.

3. What are the benefits of child policy?

Child insurance policy offers dual benefits of insurance and investment. It provides comprehensive financial coverage during times of crises, such as the parent's death or accidental disability.

4. Who is eligible for child insurance?

Children aged between 0 and 15 years are eligible for insurance. Moreover, any individual who wishes to build up a corpus for funding children's education expenses through regular investment can apply for a child insurance plan. 

5. How does a Child ULIP (Unit Linked Insurance Plan) work?

A child ULIP plan has both the insurance and the investment components. A part of the premium provides life cover while the rest is invested in a mix of equity and debt funds to grow the investment.

6. What are the tax benefits of child insurance plans?

The main tax benefit under the child insurance plan is the exemption available under Section 80C of the Income Tax Act 19612. The premiums paid towards the plan in a financial year are eligible for deduction up to Rs. 1.50 lakhs. Also, the maturity benefit is tax-free under Section 10(10D)2.

Reference links

https://cleartax.in/s/child-insurance

https://timesofindia.indiatimes.com/insure-your-kid/articleshow/18866808.cms

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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. For all details on Riders, kindly refer to the Rider Brochures available on our website.
  2. Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.
  3. Provided all due premiums have been paid and the policy is in force.

HDFC Life Critical Illness Rider (UIN: 101B018V01).

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.   

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions.  

The name of the company, name of the brand and name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your insurance agent or the intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not  in any way indicate the quality of these plans, their future prospects and returns. 

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