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.

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.  

1. 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.

2. 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 suitable for parents looking for growth-oriented investments. 

The ULIP Child Plans provide a death benefit on 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.

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 and Buying 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: 
  • Growth of Funds in ULIP: In ULIPs, the investment grows according to the performance of the funds selected. 
  • Growth of Corpus in Traditional Plans: The corpus for the maturity benefit grows as per the terms of the traditional plans.
• Maturity Benefit: On maturity, the policyholder receives the maturity benefit. 
  • Traditional Plans: In case of traditional plans, the maturity benefit is either guaranteed or non-guaranteed amount as per the policy. 
  • ULIPs: In ULIPs, the maturity benefit is the fund value of the policy on maturity.
• Death Benefit: In the unfortunate event of the policyholder’s demise during the policy term, a death benefit is paid to the nominee. 
• Premium Funding / 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.

To understand the working of 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-year-old last month.

Nikhil bought a ULIP Child Insurance Plan on her daughter’s 5th birthday to cover up for 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. 

Case 1: 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. 

Case 2: 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.  

Financial Security in Parent's Demise

Secured Saving for Your Child's Higher Education

Liquidity in Case of Financial Emergencies

• Flexibility of Partial Withdrawals in ULIP Child Plans - ULIP child plans allow partial withdrawals after a 5-year lock in period. This feature provides you with the flexibility to cover unforeseen financial needs or emergencies without closing your investment completely. 
• Facility of Availing Loan in Traditional Child Plans - Loans can be availed under traditional child plans, if required subject to terms and conditions in the plan.  

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

Customizable Riders

Choice of Funds to Optimise Returns

Premium Waiver / Premium Funding Benefit

Tax Benefits

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 play a pivotal role in securing your child's future effectively. 

Here are some of these factors to consider and make an informed decision:

Inflation and Education Costs

Premium Waiver Benefit

Liquidity and Riders

Premium Payment Frequency

Regular Payout Option

Associated Charges in the Policy

Terms and Conditions

Riders can be added to your child 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 in reasonable rates to extend and enhance the financial protection. 

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

1. Critical Illness Rider

2. Accidental Death Benefit Rider

3. Premium Waiver Rider

4. Income Benefit Rider

5. Waiver of Premium on Disability Rider

6. Hospital Cash Benefit Rider

If you undergo hospitalization 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.