Ch. 3: Benefits Of Child Plan

With parenthood comes a lot of responsibilities and duties. One of the major responsibilities is to fulfil every single one of your child’s dreams, both in the short and the long term. Your child may dream of getting an education from one of the world’s top universities and becoming an engineer or an MBA graduate or an astronaut. And as a parent, it is your duty to ensure your child follows their educational pursuits in whichever field they choose by providing assured financial support.

So, one thing is clear from the previous article - you will need a substantial amount of money if you want your child to fulfil their dreams and aspirations, whether it’s education, marriage, or any other goal they wish to achieve. But, with rising costs as well as inflation, it may become difficult to figure out how much you will need to save for the same. And on top of all this, there’s no guarantee you’ll be around forever to see your child fulfil their dreams!

A child plan that will help you in creating enough funds for your child so that they can achieve all their dreams.

Premium Waiver

The most notable benefit a child plan provides is an in-built premium waiver benefit. If you pass away during the policy term, the insurer waives all the remaining premiums, while the benefits remain intact. So, all the milestones that you have planned to cover will be fulfilled - without creating any financial burden on the child.

A child plan is a systematic way of investing money that will help you accumulate sufficient funds for covering your child’s milestones. The plan will offer flexible payouts at important points of your child’s future. You can avail periodic payments for educational expenses, lump sum payouts for wedding costs, etc.

The insurance company will pay the policy sum assured along with other benefits like enhanced coverage, accrued bonuses (if any), etc. to your nominee, i.e., your child in case you pass away in the middle of the policy term. If your child is a minor when your death happens, the death benefit will be paid to the appointee you selected while buying the Child plan. The amount received as the death benefit can be used to pay for your child’s education or other expenses.

The maturity benefit under a Child plan can be paid as a lump sum amount in one go, in the form of periodic payouts, or as a combination of both. In some plans, only the accumulated bonuses under the policy are paid on the maturity of the policy, whereas in others the sum assured and accrued bonuses are paid when the policy matures. This will depend majorly on the type of Child plan you opt for.

This is a predefined percentage of the sum assured that the insurance companies pay throughout the benefit payout period on an annual or biannual basis.

For instance, say you buy a Child plan for your son with a sum assured of Rs. 10 Lakhs. The insurer will make periodic payments over a span of 3 years when your son turns 18. Let’s assume the insurer will pay 30% of the sum assured in the first and second years, and 40% in the third year. This is how the assured benefits be paid to you -

You can also use the Child plan as collateral to avail loans. You can use it to obtain a loan for education, the marriage of your child, or other child-related borrowings.

For instance, your son wants to become a cricketer. There’s a cricket training course that is going to start next month in his school. The fees for the course, however, are very expensive. In such a case, you can use the Child plan as collateral and avail loan against it.

In case you’ve opted for a Child ULIP policy, you can also make partial withdrawals from your yet-to-mature policy. This can be done after a lock-in period of 3 to 5 years (may vary from insurer to insurer). Basically, in case of medical or other emergencies, you can withdraw specific amounts of money from the fund value multiple times during the policy tenure.

Besides all the above benefits, a Child plan also offers tax advantages. The child plan premiums are tax exempted under Section 80C of the Income Tax Act, 1961, up to a limit of Rs. 1,50,000. And the payout made by the insurer is exempted too, under Section 10(10D) of the Income Tax Act, 1961.

So, these are the various benefits a child plan provides. If you want to ensure that your child’s short-term and long-term dreams are not hindered because of the unavailability of financial resources, you must definitely consider investing in a child plan.