Topic 3: Child Insurance Plan: Catch them young

Child plan is insurance plan that financially secures your child's future and serves as an investing tool. Child Insurance Plan- a product to secure the future of the child, by insuring the life of a parent. Child plan is an insurance plan that financially secures your child's future and serves as an investing tool. It is an insurance plan that helps to build a corpus over time to protect the future of the child and their expenses and in case if the parents die. It is important to have a disciplined approach of investing and to create a safety net and not to lack in terms of money while providing platform for your child's higher education. For example, the management course from IIM which cost around Rs20 lakhs today will cost around Rs60 lakhs in next 20 years at 7% assumed inflation. Similarly, a post-graduation degree from a reputed foreign business school will cost around Rs50 lakh which will go up to 2 crores in next 20 years at 7% assumed inflation.

Features and benefits
  • A child plan comes with multiple benefits, along with the basic maturity benefit. The three main benefits of a child plan are death benefit, waiver of premium and maturity benefit
  • If the policy holder dies in middle of the term period, a sum assured as death benefit is paid by the company. The death benefit is provided either inform of school fees and family income or as a lumpsum amount by the company
  • Also in case if the policyholder dies in the middle of the policy term, the premium is waived off; the family or the surviving parent does not have pay for it. The insurance company pays the rest of the premiums and the policy continues uninterrupted till the end of the policy term and the child also receives the maturity benefit when the term ends
  • Tax benefit is applicable on the amount invested U/S 80C and the maturity earnings under U/S 10 10(D)

Type of Insurance Plans
  • The types of plans available in the market are endowment plan and ULIP. It depends upon the risk appetite of the insured, whether he wants to go for ULIP child insurance plans with market linked returns or endowment/guaranteed child insurance plans
  • For child's education, ULIP is the suitable choice because when staying invested for long-term ULIP's provide higher returns

Factors To Keep In Mind
  • While planning for a child's expenses it is necessary to make sure that education inflation is taken into the account
  • Both endowment and ULIP child insurance plan generally comes with age criteria, to ensure that pay out happens in a manner that is related to the child's education. It is imperative to decide the time when the fund will be required, which mostly is when the child attains 18 years
Source: http://www.businesstoday.in
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