Ch. 1: What Is Child Insurance Plan?

As a parent, one of your major goals is securing the future of your child. This includes fulfilling every milestone, dream and aspiration of theirs - without them having to compromise on what they want.

Two of the biggest milestones of your child’s life would be getting a good education and marriage. You want them to succeed in life, and live happily! But, with the rising inflation, education costs, and overall expenses - it can be quite difficult to do so. You will need to ensure you have a solid fund so your child, the most precious part of your life, can have a bright future.

And this is precisely where child insurance plans help you. A child plan will ensure your child’s financial well-being and make sure all their dreams are taken care of, without causing a huge dent to your funds.

Let's see what a child plan is in detail.

What is Child Plan?

A child plan is a smart way of giving your child a stable and promising future. It is designed as a mix of both investment and insurance. These plans help you accumulate enough funds to secure your child’s future. This money can be used for key milestones such as higher education, marriage, etc.

Basically, the parent owns the plan and the child is the beneficiary.

Major aspects of child life insurance plan

1. Death benefit
You invest for your child's goals, and don’t want them to be affected. A unique aspect of child plans is that in cases of death of the life insured - the policy does not terminate. The insurer will waive off any future premiums until maturity.

If, due to an unfortunate circumstance, you pass away during the policy term, the child is eligible to receive the death benefit. The death benefit is the sum assured along with any accrued bonuses.

In case the child is a minor, the death benefit cover will be handed over to the appointee (as selected by you during policy purchase). They are responsible for safekeeping the funds until the child turns 18.

The death benefit will be paid out immediately. The policy will continue till the end of the policy tenure and no premiums are required to be paid in the future. And yes, all the policy benefits shall continue as well.

2. Maturity Benefit
The maturity benefit is basically the sum assured with any accrued bonuses. Keep in mind that bonuses will accrue only if it is a participating policy. Only accrued bonuses may also be paid, depending on the product you have chosen.

You, the policyholder, are eligible to receive the maturity benefit.

The maturity benefit may be payable in the form of assured payouts, lump sum payouts, or as a combination of both.

3. Payout Customization
You can customise the payouts depending on the child’s needs. This can be -

→ Assured Payouts, i.e., a predefined percentage of the sum assured which is paid throughout the benefit payout period, on an annual or biannual basis. The benefit payment period and frequency depends on the product you choose.

Some plans give you the option to receive the payouts only when a few years have passed after the premium premium payment term is over. Some plans may not have this condition.

Periodic payments are usually chosen for recurring expenses like admission fees, any extracurricular activities they might pursue, etc. - to meet the child’s educational milestones.

A lump sum along with any accrued bonuses. Bonuses will be paid only if you’ve a participating child plan. This is payable when the policy matures or as a death benefit

As a combination of both. This is a good choice if you want to cover both educational goals and marriage costs.

Important Note: Customization of payout options varies across insurers and products. Make sure you go through the policy wordings carefully.

4. Other customizations based on your preference and child’s future plans
The child plan can be customised according to the plans you’ve laid out for your child’s life. They include rolling premium payment term options, rolling policy term options, multiple benefit period payout options. These ensure that all the major milestones of your child are covered.

A policy rolling premium payment term gives you a range of years to pay off the premiums, thereby offering you greater flexibility. You can choose the most convenient option according to your financial stability and the milestones. For instance, suppose the plan gives you the option of choosing the term from 8 years to 32 years. You can choose 8 years, 9 years, 10 years, 11 years, etc. as your payment term.

5. Enhanced Coverage
When you purchase the policy, you have an option for enhancing the cover amount by 50%, 100%, or 200%. This can be opted for by paying an additional premium. If you, unfortunately, pass away during the policy term - the additional sum assured will be paid to your nominee immediately.

They shall have the option to receive the sum assured as a lump sum or as a mixture of both lump sum and annual/monthly income.

Important Note: The enhanced coverage feature varies across insurers and products. Make sure you go through the policy wordings carefully.

6. Loyalty Additions
Some insurers will enhance your chosen sum assured by 20% as loyalty additions once the premium payment term is over - if you have paid all the premiums on a regular basis.

Understand Child Insurance Plan Better With an Example:

Raj has a daughter, Roma, who is 10 years old now. He decides to save money for her education. He gets a participating child plan with a sum assured of Rs 25,00,000 for a policy period of 16 years and a premium payment term of 6 years. The policy provides periodic payments of a percentage of the sum assured, and accrued bonuses as the maturity benefit.

Raj will need the money for her educational expenses, i.e., to cover the admission fees to a prestigious university - when she is 19 years old. So, he chooses to receive the sum assured as a periodic payment. They will be paid over a span of 3 years when his daughter is 19. Let’s assume they are 30% in the first year, 30% in the second year, and 40% in the third year.

Now, let’s see how the benefits work -

When Roma turns 19

The assured payout benefit, i.e., Rs 25 lakhs will be paid over a span of 3 years according to the percentages given above.

1st year - 30% of 25 lakhs - 7.5 lakhs
2nd year - 30% of 25 lakhs - 7.5 lakhs
3rd year - 40% of 25 lakhs - 10 lakhs

When Roma turns 26, the policy will mature. Since the cover amount has been paid to her as periodic payments, she will be eligible to receive the accrued bonuses.

Death Benefit
If Raj passes away during the 4th year of policy term, the policy will not be terminated. The insurer will waive off any future premiums and continue the policy till the end of the term.

Please note that Roma is 14 years old.

This will be divided into three payments -

When Raj passes away
100% of the sum assured will be paid. So, Roma will receive Rs 25 lakhs as a lump sum immediately. The appointee nominated by Raj in the policy will take care of these funds until Roma turns 18.

The maturity amount remains intact, i.e., Rs 25 lakhs will be paid over a span of 3 years according to the percentages given above.

1st year - 30% of 25 lakhs - 7.5 lakhs
2nd year - 30% of 25 lakhs - 7.5 lakhs
3rd year - 40% of 25 lakhs - 10 lakhs

When Roma turns 26
She will receive the accrued bonuses (if any) at the time of maturity.

It is an obvious fact that as a parent, your kids are the most important part of your life. They form the foundation of your happiest moments. Bearing that in mind, it is vital to carefully explore the various options available with regard to child insurance and zero in on the best ones that meet your and your child's needs. Make sure you customise the child plan to address your child's future necessities and fulfil their dreams even in your absence.