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Child Insurance Plan: Types, Coverage & Benefits Explained

Can there be anything more delightful than seeing our kids fulfil their dreams?

As parents, we strive to provide them with the best opportunities, but life's uncertainties can disturb even the most carefully planned aspirations.

This is where Child Insurance Plans step in as a security and support, offering you a comprehensive way to safeguard your child's dreams. Designed to integrate financial protection and future planning together, Child Insurance Plans are a promise to safeguard your child's future, even in your absence.

What is a Child Insurance Plan?

A child insurance plan combines protection and savings to secure a child's future. It offers life insurance coverage for the parent, along with a dedicated corpus accumulation for the child's future needs.
This plan ensures that even in the absence of the policyholder, the parent in this case, the child's future aspirations are financially protected.

Features and Benefits of Child Insurance Plan

Child insurance plans offer a range of features and benefits that secure a child's future and financial well-being.

Financial Security in Parent's Demise

Child Insurance Plans are a safety net for your child’s future. In the unfortunate event of the policyholder's demise, the payout from these plans helps maintain the child's quality of life and covers their educational aspirations.

Secured Saving for Your Child's Higher Education

Child insurance plans provide a certain maturity value, which might be guaranteed or non-guaranteed, depending on the plan. Thus, they create a dedicated corpus that ensures your child's educational aspirations are met without financial hurdles.

Liquidity in Case of Financial Emergencies

ULIP child plans offer partial withdrawals after a 5-year lock-in, allowing access to funds for emergencies without ending the policy. Traditional child plans, on the other hand, may allow loans against the policy, subject to specific terms and conditions.

Income Protection with Regular Payouts

Child insurance plans in many cases provide periodic payouts, ensuring a steady income stream for your child's evolving needs. This acts as a safety net, ensuring that essential expenses are met, even in your absence.

Child insurance plans help you systematically plan for various life stages of your child’s life. You can align these payouts with milestones like college education, post-graduation, or marriage, ensuring funds are available at various stages of your child’s life.

Bonus Accumulation

Some traditional child plans have the feature to accumulate bonuses or guaranteed additions over time. These bonuses can significantly contribute to the final maturity amount, thus boosting your investment.

Customizable Riders

Child insurance plans can be further enhanced with riders. These riders can include critical illness cover, accidental death benefit, premium waiver benefit, etc. With these riders, you can customise the plan to your specific requirements.

Choice of Funds to Optimise Returns

The ULIP child insurance plans offer the flexibility to choose investment funds based on your risk appetite and financial goals. Thus, you can align your plan with your investment strategy.

Premium Waiver / Premium Funding Benefit

Most child insurance plans come with a premium waiver / premium funding benefit. In the unfortunate event of the policyholder's demise, this benefit ensures that the future premiums are waived off or funded by the insurer, allowing the plan to continue for the child’s future is secure in absence of parent.

Tax Benefits

Child insurance plans offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, as per the prevailing tax regime, thus allowing you to save on taxes while securing your child's future.

How Does a Child Insurance Plan Work?

A child insurance plan focuses on building a corpus for future financial needs of the child, while at the same time, providing financial protection from any unforeseen event like the parent’s demise. Here is how a Child Insurance Plan works:

Choosing the Most Suited Plan

Parents or guardians select a child insurance plan based on their financial goals, premium-paying capacity, and desired coverage amount.

Regular Premium Payments

The policyholder pays regular premiums towards the plan as per the frequency and mode selected.

Investment

A portion of the premium goes towards providing life insurance coverage for the policyholder, while the rest of it is invested by the insurance company to build a corpus.

Growth

ULIPs grow based on market fund performance, offering higher return potential. Traditional plans grow steadily with guaranteed returns, ideal for low-risk investors.

Maturity Benefit

ULIPs pay the fund value at maturity, while traditional plans offer a fixed or variable amount as per policy terms.

Death Benefit

In the unfortunate event of the policyholder’s demise during the policy term, a death benefit is paid to the nominee.

Premium Waiver

Most Child Plans provide premium waiver or premium funding after the death of the parent (policyholder) to ensure that parent’s savings for desired goal of child’ bright future continues uninterrupted even in insured parent’s absence.

Flexibility

The ULIP Child Plans offer the flexibility to choose or switch between different funds based on the policyholder’s risk appetite and financial goals.

Riders and Additional Benefits

Riders can be added to the plan to enhance its coverage benefits. Some plans also provide benefits like income benefit and loyalty additions.

Types of Child Insurance Plans

Child Insurance Plans can be broadly classified into the following types:

Traditional Child Plans

Traditional Child Insurance Plans are basically the savings plans secure from volatility and risk of equity markets.
They offer a safe investment option, ensuring a secure financial future for your child. They provide a guaranteed death benefit in case of your unfortunate demise during the policy term. Additionally, in this case, the future premiums are waived off and the plan also provides a maturity benefit as and when due on maturity.
These plans assure both protection and disciplined savings, making it a suitable investment option for parents seeking long-term financial security, with a set goal, for their child's aspirations.
To enhance this security, many parents also consider adding a term insurance policy to supplement their coverage, as it ensures that in the unfortunate event of the parent's demise, the family receives a lump sum payout, helping maintain financial stability and continuing the child’s journey toward their dreams.

ULIP Child Plan

A Child ULIP Plan combines insurance coverage with investment opportunities. It offers the potential for higher returns linked to market performance.
You can choose from various investment funds based on your risk appetite and financial goals. Thus, more suited for investors who have a higher risk appetite and are suitable for parents looking for growth-oriented investments.
The ULIP Child Plans provide a death benefit on the unfortunate demise of the policyholder parent. Additionally, the policy continues after this, and the future premiums are funded by the insurer. On maturity of the policy, the fund value is paid as the maturity benefit, thus securing the future of the child.

Illustration on How Child Insurance Plan Works

To understand the working of the Child Insurance Plan better, let’s consider the case of Nikhil. A software engineer, staying in Delhi with his wife and a daughter who is turned 5 years old last month.
Nikhil bought a ULIP Child Insurance Plan on her daughter’s 5th birthday to cover her higher education. He plans to invest Rs. 1,00,000 per annum over a period of 15 years. His policy has a death benefit of 12 lakhs.

Scenario Cases of Child Insurance Plan

Case 1

Case 2

Nikhil Receives the Fund Value at Maturity

When Nikhil survives the policy term, he will receive the fund value of his investment. Depending on his policy feature, he can opt to receive it in lumpsum mode or regular payouts.

Nikhil's Daughter Recieves Death Benefit

In the unfortunate case of Nikhil’s death during the policy term, his daughter will receive the death benefit which is 12 lakhs here. The policy, however, will continue after this for the remaining policy term. The future premiums would be funded by the insurer and his daughter will receive the fund value on maturity, in addition to the death benefit already received.

Factors to Consider While Choosing a Child Insurance Plan

The most important step in your insurance buying journey is to start your child's financial journey early, as early as the day they are born, to leverage the power of compounding. Time is the biggest factor in building a substantial corpus for your child’s future.

Apart from this, selecting the optimal child insurance plan requires careful consideration of various factors. Each of these factors plays a pivotal role in securing your child's future effectively.

Here are some of these factors to consider when making an informed decision:

Inflation and Education Costs: Factor in inflation and future education costs while determining the coverage amount. Ensure that the plan's benefits are aligned with the rising expenses of higher education and other essentials.
Premium Waiver Benefit: Opt for a plan that offers a premium waiver benefit. In case of the unfortunate death of the policyholder, this feature ensures that the policy continues, with all future premiums waived off, thus keeping the child’s future secure.

Types of Riders Available in Child Insurance Plans

Riders can be added to your child's insurance policy and allow you to further customise and enhance the coverage of your base plan. Riders are the optional add-ons that you can add to your base plan at reasonable rates to extend and enhance the financial protection.

Here are some common riders that can be added to child insurance plans:

Critical Illness Rider

This rider provides financial coverage in case you are diagnosed with a critical illness covered under the policy. It helps manage medical expenses, thus ensuring that you get your medical treatment without having your family suffer through the financial hit.

Accidental Death Benefit Rider

In the unfortunate event of your demise due to an accident within 180 days of the accident, this rider offers an additional payout on top of the base sum assured, providing extra financial support to your family.

Premium Waiver Rider

The premium waiver rider ensures that in the case of policyholder’s death, the future premiums are waived off, and the policy continues to eventually benefit the child.

Income Benefit Rider

With this rider, the policyholder's family receives a regular income in case of the policyholder's unfortunate demise. This additional income helps maintain the family's financial stability.

Waiver of Premium on Disability Rider

Works like the premium waiver rider with the only difference being the trigger event, which, in this case is, disability due to an accident. This rider ensures that in such a case, all future premiums are waived off, ensuring the continuity of the policy for the child's benefit.

Hospital Cash Benefit Rider

If you undergo hospitalisation due to any medical situation, this rider provides a daily cash benefit, thus helping you manage the overhead expenses that arise during the hospital stay.

Child insurance plans stand as a vital pillar of financial planning nurturing the dreams and aspirations we hold for our children. They offer security, savings, and growth potential. They not only protect against unforeseen circumstances but also empower parents to pave the way for a brighter future.

With a Child Insurance Plan, you can invest wisely, secure your child's dreams, and embark on a journey towards a financially secure tomorrow.

FAQs about Child Insurance Plans

What Happens to My Policy if I'm Unable to Pay the Premium Due to Financial Constraints?

Child insurance plans offer a grace period in case you miss the premium payment. The duration of grace period is 30 days in case of policies that have annual, half yearly or quarterly premium payment and 15 days in case of monthly paid premium policies.

However, if you miss paying the premium even within this period, your policy will lapse. It's essential to check the policy terms.

Is There a Waiting Period Associated with Riders Attached to Child Insurance Plans?

Yes, some riders, especially like critical illness rider, might have a waiting period before they become active. Which is why it’s necessary to go through your policy document to be prepared better.

Can I Get a Loan Against a Child Insurance Plan?

Yes, traditional child insurance plans provide the facility of loan against the policy wherein the surrender value serves as a collateral for the loan.

Are Child Insurance Plans Eligible for Tax Benefits?

Yes, premiums paid towards child insurance plans and the maturity amount, both are eligible for tax benefits under section 80C and Section 10 (10D) of the Income Tax Act as per the prevailing tax regime.

Can I buy a health insurance plan along with a child insurance plan?

Yes, many parents opt for both. While a child insurance plan helps build a financial cushion for future needs, a health insurance plan covers hospitalisation, treatments, and preventive care. This dual approach ensures your child’s present and future are both well-protected.

Important Articles About Child Insurance Plans

Child Care

Child Savings Plan

Child Parenting

Investments for Children

Child Education

Child Wellbeing