Investment School: What are child insurance plans?

What are child insurance plans?

As most of us have plans on fulfilling our children's upcoming dreams on their career, we are more vigilant in planning for their future financial needs. As with any other financial needs, proper planning will ensure that your child's future financial needs are catered to.

          Most of you would have heard about "children's life insurance plan". The very common misconception is that it insures child's life, but it is not so. It is a policy which insures the parent only but the child get benefited out of it. Lets see how it works.

1. A children policy is taken by the parent as the policy holder.

2. The important feature of the policy is WOP(Waiver of Premium). In case if the parent dies during the term of the policy, all the future premiums are waived for the policy and the sum assured is paid immediately to the child of the parent.

Eg. For a 25 years old with a kid of 1 year old, the child insurance policy from hdfc for 20 years of sum assured of 1 lac have a premium of 4900/month. In case of eventuality to the parent 5 years down the line, the kid will get 1 lac immediately and all future premiums will be cancelled. On the other hand, if policy matures 20 years down the line, the kid will get 2.25 lacs when he/she turns 21.

3. There are quiet interesting child insurance policies. For eg LIC has a child insurance policy gives the option of giving 10 half-yearly installments on maturity instead of giving a bulk amount.

4. There are few insurance policies, which gives a assured amount to kid in various period of their life. (when kids turns 18, he/she receives certain %age of amount, when he/she turns 21, she gets certain %age and so on).

5. Child insurance policies comes in two flavours - ULIP and Endowment type. Endowment offers fixed rate of return while ULIP returns depends on the market. So you can make a decision after evaluating both the options.

     So as with any other investment products, there are variety of child insurance plans available in the market. Have a good analysis of the policies before buying it, BUT one should definitely give  a portion of insurance premium to child insurance policies.

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