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Learn to Withdraw Money from a Child Plan

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Learn to Withdraw Money from a Child Plan
September 22, 2022

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Every parent always wants to give their child the world. They work hard to fulfill their every wish and desire. But, nobody knows what the future holds. The rate of inflation could demolish your savings, and you may not have the funds you need to turn your child’s dreams into reality. To help overcome this issue, there are specific investment plans, such as the best one time investment for a child, designed to secure their financial future. Let’s take a closer look at these policies.

What Is a Child Plan?

A child plan provides life cover to the parent while also allowing them to invest and grow their wealth for their child’s future. These plans provide flexible payout schemes and often provide small sums whenever your child reaches a significant milestone in their life. A child insurance plan allows you to save up for your child’s future and make regular investments as well.

Types of Child Plans

Every insurer offers its own version of a child plan. Broadly speaking, there are five types of child insurance plans available in India:

  • Child Unit-Linked Insurance Policy (ULIP)

    A child ULIP provides three main advantages. Firstly, they provide high sum assured amounts to the parent or legal guardian. If anything happens to the insured individual during the plan term, the child receives the sum assured amount and all future premium payments are waived. Additionally, it works as a disciplined investment scheme. It encourages you to pay your premiums on time and continue to invest in your child’s future. Most importantly, a child ULIP allows parents to invest their money in equity markets. Most people opt for safer options like debt funds, but equities provide significantly higher returns.

  • ULIP

    Parents can also invest their money in a regular ULIP. These policies provide both life coverage and wealth creation opportunities. They also allow the policyholder to pick the funds where they’d like to invest their money. A ULIP is a good option for those who have long-term goals of around 10 to 15 years. You can even look for ULIPs where the profits you earn on your investment automatically get transferred from equity to debt instruments.

  • Traditional Endowment Plans

    An endowment plan is a simple policy to understand. Here, the investor earns stable returns as bonuses over and above the sum assured amount. In traditional plans, investors receive the bonus from the second year.

  • Single-Premium Child Plan

    Here, the individual pays a single lump-sum amount as the premium for the whole policy term. These policies reduce the stress of having to remember to pay a premium amount every year or month.

  • Regular Premium Child Plan

    On the other hand, parents can also opt to purchase a regular child insurance plan. Here, they pay premiums at regular intervals. The parent has the ability to choose the frequency with which they want to make premium payments – monthly, quarterly, half-yearly or annually.

Withdrawing Funds from a Child Plan

Parents or guardians can opt to make withdrawals from a child insurance plan. But, most policies come with a 5-year lock-in period. Let’s take a look at how these withdrawals work:

  • Before the 5-Year Lock-in Period

    Every ULIP has a 5-year lock-in period. An individual can opt to make a withdrawal against the policy by surrendering it or stopping premium payments. Once the premiums stop, the accumulated funds will be released only after the completion of the 5-year lock-in period. Should you stop making payments in the first five years, the policy becomes null and void. If you want a child plan at a later stage, you will have to purchase a whole new policy.

  • After the 5-Year Lock-in Period

    Once the lock-in period is over, you can make partial withdrawals against your policy. It’s better to make partial withdrawals since you can quickly liquidate funds while keeping all your investments active. Should you remove all the funds from the child plan, it will end immediately. There is a limit on the amount you can partially withdraw from a child insurance plan. Most companies only allow individuals to withdraw up to 10% of total premiums paid, while others allow up to 20%. You must check how much you can withdraw from the fund value without terminating your policy.

  • Withdrawal After a Top-Up

    Very often, people add top-up investments to their existing plans. If you plan to make a withdrawal after a top-up investment, your insurer will likely settle the amount from the top-up. This will leave your investment funds untouched.

Things to Remember When Withdrawing from a Child ULIP

Before you opt to withdraw funds from a child insurance plan, you must educate yourself on the terms and conditions properly. If you withdraw too much, you may attract certain additional fees. Or, you may have to terminate your policy immediately. It’s a good idea to check with your insurer about how much you can remove and how to work around keeping your policy active.

Key Features of a Child Insurance Plan

A child plan offers investors several useful features, such as a capital guarantee, the waiver of premiums, partial payments and withdrawals, immediate financial protection and tax benefits.

Additional Riders

Almost every child insurance plan will allow you to opt for additional riders for enhanced protection. There are three main riders:

  • Accidental Death and Disability

    Here, the child receives an additional sum assured payout in case the parent or guardian is involved in an accident that is fatal or causes a permanent disability.

  • Premium Waiver Benefit

    The parent can opt for this rider to keep the investment policy going even if something happens to them. Sometimes, this is a built-in feature with your child plan, so check your documents first.

  • Critical Illness Rider

    The rider provides a payout if the insured individual receives a critical illness diagnosis.

Benefits of Having a Child Plan

When you opt for a child insurance plan, you can enjoy:

  • Flexible fund payments
  • Secured loans against the plan
  • Choice between ULIP and endowment policies
  • Flexibility to pick premium payment terms
  • Funds made available at maturity or when something happens to the insured

HDFC Life Critical Illness Plus Rider (UIN: 101B014V02) is a non-linked, non-participating rider. Please know the associated risk and applicable charges from your insurance agent or the intermediary or policy document of the insurer.

HDFC Life Income Benefit on Accidental Disability Rider (UIN: 101B013V03) is a Non-Linked, Non-Participating Rider. Please know the associated risk and applicable charges from your insurance agent or the intermediary or policy document of the insurer.

HDFC Life Protect Plus Rider (UIN:101B016V01) is a Non-Linked Health Insurance Rider. Please know the associated risk and applicable charges from your insurance agent or the intermediary or policy document of the insurer.

For all details on Riders, kindly refer to the Rider Brochures available on our website.

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ARN: ED/09/22/28844

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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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Author Profile Written By:
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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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 or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked 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. HDFC Life Insurance Company Limited is only the name of the Insurance Company, HDFC Life is only the name of the brand. 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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