There are various reasons which make a child insurance plan a good choice. Some of these reasons are as follows -
Urgent Help for Financial Emergencies
If, under a child plan, the parent is the life insured and the parent passes away, the plan pays a death benefit to the nominee. This benefit can come to the aid of the bereaved family that might be facing financial challenges after the breadwinner passes away. As such, child plans can provide urgent financial assistance when needed.
Addressing Increasing Education Costs
Education costs tend to increase with time. Traditional child education plans might offer additional bonuses or other forms of benefits that can increase the corpus and help you meet the inflated costs. Similarly, if you choose ULIP plans, you can enjoy market-linked returns and create a good corpus for meeting the increased education expenses.
Using Collateral to Secure Education Loans
Child education plans are treated as assets for policyholders. As a parent, you can use these plans as collateral security to get an education loan for your child’s higher education. Moreover, traditional child education plans also offer the facility of a policy loan that can give you access to funds against your policy’s surrender value.
Safeguarding Your Child's Future
As mentioned earlier, most child plans come with a premium waiver benefit, which is offered either as an inbuilt feature or as an optional one. This premium waiver benefit ensures the continuity of the child plan even if the parent passes away during the policy term. The insurance company pays the premium on behalf of the deceased parent, which helps in creating a secure corpus for the child’s future.
Investment Returns
With child ULIPs, you can get market-linked returns on the invested premiums. These returns, over time, can help you accumulate a good corpus for your child’s needs.
Life Coverage
Since child plans are life insurance plans, they provide the added benefit of life insurance protection too, besides allowing you to save up for your child’s future. This insurance coverage provides financial security against untimely demise.
Tax Benefits
Lastly, child plans have distinct tax benefits that can help you create a tax-efficient corpus for your child. Firstly, the premium paid for the policy qualifies as a deduction under Section 80C up to ₹1.5 lakhs1. Secondly, the death benefit received is always tax-free2. Thirdly, if the child plan matures and pays a maturity benefit, such a benefit would also be tax-free under Section 10(10D), subject to specific terms and conditions3.
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