Before we set upon the topic of our discussion, it is perhaps pertinent to answer ‘What is life insurance?’. Life insurance, by definition, is a bipartite contract between the insured and the insurance company. The consideration of the contract is the premium, which the insured pays over time. The insurance company pays the maturity amount with interest after a preset policy term or, in the event of death of the policyholder.
The customary principle behind all life insurance policies is related to the mortality of the insured. However, life is more uncertain, volatile, and more complex than ever before. This has necessitated investing in instruments that shall help in building up a corpus fund over time. It may be used later for children’s education and marriage.
The challenges of modern-day life are many. We have nuclear families with rising aspirations, coupled with an incremental cost of education for the children. If there is a setback in life, the child gets affected the most, their education taking the first hit. A life insurance policy meant for the child, often called a Child Plan, mitigates this risk. These policies come with the objective of helping the children to achieve their life goals.
Parents with children in the 0-15 age bracket who are usually keen to create a corpus for their kids’ futures are the best candidates for a Child Plan. The reasons for investing in a Child Plan are:
1.Coffer for Education: Child Plans are available in the form of ULIP or money-back policies. In both cases, the premium needs to be paid for a limited period. That is, for a five-year-old child, a fifteen-year Child Plan may be bought. Premiums for the same may be paid for ten years and get the maturity amount when the child attains fifteen years of age. This is the time when the child’s cost of education starts spiralling up. The guaranteed fund that comes in provides the relief.
2.Covering Disability of the Parent: An untoward accident can impair the earning capacity of the parent. A permanent disability may put an end to earning. There are types of life insurance policies available whereby the insurance company disburses the sum assured on the policyholder in the event of permanent disability due to an accident. The main policy, however, continues till it reaches the maturity value.
3.Aids to Achieve Life Goals: The returns on Child Policies are often high. They stay ahead of the inflation rates both in the medium and long term. It helps in the growth of money exponentially. Options are available in endowment plans, where the money grows stably. These accumulated funds provide capital for achieving a child’s life goal of attaining higher education, maybe in a foreign university.
4.Education Loans: The insurer provides loans against a Child Plan. Once the lock-in period is over, accrual of surrender value commences. That value is always upwardly mobile as the parent continues investing in the policy. If there is a requirement of funds before the policy matures, the insurance company offers loans against the policy.
5.Income Tax Rebates: Premium up to Rs. 1.50 lakh are exempted from Income Tax under Section 80C. The maturity amount and the amount that may have been drawn partially are also exempted from Tax.
6.Provides Coverage After the Demise of the Insured: There are Child Plans available that leave a legacy for the child and make provisions for their education. The policy helps in fulfilling the parental obligation and covers the life of the parent. After the parent’s passing, the child shall get the sum assured as a legal heir.
Conclusion
The joy of being a parent cannot be measured. At the same time, wise parents shall surely make provisions for the future of the child. A Child Insurance Plan helps fulfil more than what one thinks needs to be done for children. A smart balance needs to be maintained between sentiment and practicality. Invest prudently to give your child a worry-free life. The key to success is to choose the plan that’s right for you.
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