In India, life insurance for a child is not a very popular concept. But this is a highly beneficial policy type that provides maturity benefits, tax savings, flexible repayments, and high returns as compared to fixed deposits or provident fund accounts.
When compared with other investment tools like mutual funds or fixed deposits, child insurance plans are a safe and secure way to earn higher interest rates on the investment. Flexible payments at maturity as well as the option to invest in equity or debt instruments interchangeably make these policies the choice option for people who have a decent level of financial knowhow.
Life insurance for children loosely implies buying of life insurance policies by the proposer, whose benefits will then be forwarded to the child at various important junctions of his/her life such as education, marriage, mortgage payment, and so on.
Reasons to Buy Children’s Life Insurance Policies:
Child insurance plans offer assured benefits to your child or ward when they come of age and need the funds for future prospects. So, if your child is 8 years old now, then you can buy a child insurance plan that will mature in 10 years when he/she turns 18. The funds can be released as a lump sum, or you can choose partial payments so that the money may be partially withdrawn as and when needs arise.
Advantages Over General Life Insurance Policies:
The major advantages of life insurance policies for children over general life insurance policies are:
- Maturity benefits to be paid in case the insured survives the policy tenure.
- In case of death of the insured, remaining premium will be paid by the company till maturity. The sum assured will be paid out normally at the death of the insured.The maturity amount will be paid when the policy matures.
Features of Child Insurance Plans:
In general, life insurance policies for children are meant to provide a cushion to s child in case the death of a parent presents financial difficulties in pursuing important life choices. These plans are available in both linked and non-linked varieties, with various options to singly or periodically pay premiums.
Premiums: Premium can be paid as a lump sum at the beginning of the policy tenure, or you can choose to pay it periodically. Most companies provide options such as monthly/quarterly/half-yearly/annual premium collection, which can be given standing instructions to be credited directly from your bank accounts. The amount of premium depends on the maturity and sum assured figures that you have chosen.
Sum assured: The sum assured implies the amount that will be paid out in case of the policyholders’ demise. In general, sum assured should be above 10 times the current gross income of insured.
Maturity: The maturity amount should be chosen with an eye on the future. Assuming your child is 8 years old, and his policy will get matured in 10 years’ time, then you should take into consideration factors such as inflation and interest rates. If you fail to consider these factors, the released funds may fall short of the requirements in future. Also, plans such as single premium plans may not provide maturity benefits, so kindly check the policy documents clearly before applying.
Tenure: These life insurance policies are generally meant for children up to the age of 18/21, though you can find specific plans that have a higher age ceiling. So tenures can be selected from birth until the child reaches a pre-defined age. The insured should not be more than 70 years at the time of policy maturity.
Segmented payouts: With child life insurance policies, you can select if the child will get payment as a lump sum, or in yearly instalments. Such a setting will help in paying dues such as college fees, mortgage amounts etc.
Premium waivers: An intrinsic part of child plans, premium waivers are applicable when the insured dies within the stipulated tenure. In such a scenario, the sum assured will be paid out to the beneficiary, while the premium for the remaining tenure will be paid by the insurer. At the end of the tenure, the maturity amount will be provided as detailed in the policy document. In case premium waiver is not provided automatically with the plan, you should opt for a waiver rider.
Riders: Specific riders are available that give you more out of life insurance policy. The riders are available in three basic categories – premium waiver, critical illness, and accidental death and disability. The premium waiver may already be added with your plan, so please check the policy documents in this regard. The critical illness rider provides coverage for a set of predefined critical illnesses, while accidental death and disability riders are applicable in case of unfortunate accidents that cause disability or death of the insured.
Types of Child Insurance Plans:
Unit Linked Insurance Plans: The payouts at maturity of ULIPs is determined by the markets, as the funds in ULIPs will be invested in equity instruments. This plan is good for longer tenures (more than 10 years) of policies. Companies may provide the option for choosing between different investments funds, allowing you more control over the money you have invested. Some dynamic plans are also available where the interests and monies may be transferred directly and automatically from equity to debt instruments.
Traditional endowment plans: These policies provide stable interests over the sum assured. The investments you make here are further invested into debt instruments that provide standard margins over the base amount. You should look for any bonuses you are eligible towards. In general, bonuses on traditional plans are paid from 2nd year onwards, and you can check if the bonus is in cash or if a reversionary bonus will be compounded or have simple interest.
Some companies provide the option for flexible investment also, wherein you can decide where the premium goes, and switch between the two types of life insurance as discussed above. An example of this switching would be directing your premium into ULIPs for the first few years of the policy to earn greater profits. After that, you can invest the funds in debt instruments to standardize the profits till maturity.
Policyholders can claim deductions under Section 80C of Income Tax Act. If the premium paid in a year is more than 10% of basic insured amount, benefits can be claimed only up to 10% of sum assured amount.
Tax exemptions are also available under Section 10 (10D) for interests earned on the investment, in case the premium paid in any year does not exceed one-tenth of the basic sum assured. Funds disbursed in case of death of applicant are fully exempted from taxes.
Benefits of Child Insurance Plans:
- Flexible disbursing of funds on maturity or death.
- Premium waivers in case of demise of insured within premium collection period.
- Secured loans are widely available against child insurance plans.
- Tax benefits under various sections of Income Tax Act.
- Option to choose between ULIPs and endowment plans.
- Flexible periodic premium payment options.
- Funds available on demise of the insured before maturity, and/or if the policy has reached maturity.
Choosing The Right Plan:
With the advent of private companies, the life insurance segment in India has seen phenomenal growth over the years. Every company has its own child plans but the basic structure remains the same as discussed in above sections.
You should do proper research on life insurance for kids before making a selection. Even though child insurance plans are in essence similar to each other, there are many technicalities that differentiate products from different companies. You may find better payouts from a particular policy, or there are many riders automatically available on a product – finding the right plan for your needs is the first step towards securing your children’s future.
You can visit the Insurance Regulatory and Development Authority of India (IRDA) website to find details of companies selling life insurance products, and then proceed to research child plans from different providers. This can be a tedious process, so here’s a way to skirt this time-consuming process.
Comparing Products Online:
Alternatively, you can visit various aggregator websites on the internet that provide you with comparison tools to compare various products side-by-side. This will help you in narrowing down the choices by removing plans that are not in your budget or don’t provide the cover you are looking for.
Another advantage of comparing plans is that you can easily locate any additional features provided by a company on its child insurance plans. If you are making specific and learned comparisons, you can in all likelihood find the perfect plan for your needs in a matter of minutes.
To use the BankBazaar life insurance policy comparison tool, you can enter details of your requirements through a few simple clicks. On entering all details, the relevant life insurance policies applicable for you will be displayed. You can then proceed to select the plans that interest you, and then compare them side by side with a single click.
Applying for a Policy:
Once you have selected a plan from a particular insurance provider, you can either apply directly online (if service available) or contact the provider to get a quote. Most firms will send a representative over to collect details and educate you more about individual plans. The relevant documents as asked by the company have to be in order when filling out the final application forms/details.
Alternatively, you can use aggregator websites to find the right plan and apply directly through them. Sites like BankBazaar provide options to request a quote or apply online, and you can also receive monetary benefits and online shopping coupons at the same policy rate.
Popular child insurance plans in India:
Some of the notable child insurance plans available in India are as follows:
- HDFC Life YoungStar Udaan - This is a non-linked, participating life insurance scheme that helps parents to systematically plan and invest for their children’s education and other important life events. The plan ensures that the needs of the child are met even when the parent is not around. Key features of the plan include the following:
- The HDFC Life Youngstar Udaan plan is an endowment and money back plan that has multiple variants.
- Customers can choose from three different types of maturity benefits, based on their insurance needs.
- Under the Classic Waiver variant of the plan, after the death of the policyholder, the future premiums need not be paid.
- Guaranteed Additions accrue during the first 5 years of the investment, and these are paid out at policy maturity.
- The plan allows you a wide range of policy terms and premium payment options that help you plan for the future goals of your child.
- In spite of a limited premium payment term, you can get insurance coverage for the entire policy term.
- SBI Life - Smart Champ Insurance - This is an individual, non-linked, participating life insurance scheme that helps parents invest for their children’s educational needs. This plan ensures that the family is financially protected, secures the future of the child, and offers a certain level of flexibility in choosing the premium payment options. Some of the key features and benefits of the plan are as detailed below:
- The insured receives life insurance benefits and coverage for accidental total permanent disability (ATPD) throughout the policy tenure.
- In the event of death of the policyholder, the sum assured will be immediately paid out and the future premiums will be waived off.
- After the child reaches 18 years of age, the benefits are paid out in 4 equal annual installments.
- The policyholder can choose to pay the premium as a lump sum amount or select the limited premium option.
- Bajaj Allianz Young Assure Plan - This is a traditional, participating, limited and regular premium payment endowment plan that ensures that your family’s future is financially secure. The salient features of this plan are as follows:
- There are multiple policy term options and premium payment choices that the policyholder can opt for. This ensures that money is available to the family of the insured during crucial periods like child’s education, marriage, etc.
- Guaranteed Additions (GA), Guaranteed Maturity Benefit (GMB), and bonuses are offered to the policyholder to ensure that he/she receives good returns from the investment.
- Based on the customer’s future financial needs, there are three cash installment options that can be chosen from.
- In the event of accidental disability or death of the policyholder, comprehensive insurance coverage is offered.
- It is possible to enhance the coverage under the plan through appropriate riders.
- The insurance company offers special premium rates for female customers of the plan.
When should I buy a child plan?
You should ideally buy a child plan as soon as your baby is born. This allows you to accumulate more funds towards the maturity amount. Also, the younger and healthier a person is, the lower will be premiums associated with insuring them.
Can I buy a child plan for my 15 year old?
Yes, you are free to buy child insurance policies for your kid. However, the maturity amount and the sum assured will be low as the plans generally mature when the child turns 18, allowing you only 3 years of premium payments.
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