Child insurance plans may be an essential financial instrument for parents. As a parent, they may give you assurance about the financial security of your children's future. These plans may be specifically designed to provide comprehensive coverage to your child in case you were to undergo an unfortunate event (such as death or disability). They may help secure your child's future and safeguard their education and other expenses even in your absence.
Just like other life insurance plans, below are some key terms in child plans, which may be crucial if you want to make an informed decision while selecting an appropriate policy. Let’s explore some of them.
1. Premium
In return for the coverage that you receive from a child insurance plan, you may be expected to pay a certain amount to the insurer. This amount, which may be considered the cost of the insurance plan, is called the premium. It is important to pay the premiums on time to keep the child insurance plan valid throughout the policy tenure.
2. Nominee
It is the person who is entitled to receive the benefits under the child insurance plan in case of death of the life assured during the policy term. The policyholder may name their child as their nominee as well. If their child is a minor, then a custodian may have to be appointed till the child comes of age.
3. Sum assured
The sum assured is the amount the nominees of the policy may receive on the demise of the life assured. The sum assured is also called the life cover. The sum assured may help the family get back on track financially after they lose their primary earning member.
4. Maturity benefit
Many child insurance plans may have a maturity benefit component to them. What this means is that, once the plan reaches its maturity date, the policyholder or the nominees may receive a certain amount as the maturity benefit. The maturity benefit may be in the form of the return of all premiums paid, or it may be comprised of guaranteed* additions, bonuses, or any other savings element depending on policy terms and conditions.
5. Premium paying term
It is the period for which you may pay the premiums of the policy. In some child insurance plans, the policyholder may have to pay the premiums throughout the tenure. In other plans, limited premium paying terms may be available, depending upon the insurer and the plan chosen. After the term has ended, you may continue receiving coverage for the policy term even though there may be no need to pay premiums.
6. Riders
Riders are add-on benefits that may supplement the child insurance plan at the cost of a small extra premium. A rider provides coverage against an added list of unfortunate events besides the demise of the life assured.
Let’s look at some common rider terminologies of child insurance plans:
a. Waiver of premium rider -
If the life insured passes away, undergoes a disability or is diagnosed with a critical illness, the future premiums of the policy may be waived off under this rider.
b. Family income benefit rider -
If the life insured is unable to work due to the diagnosis of a critical illness or due to a permanent disability, the family may suffer loss of income. In such cases, this rider will pay out periodic income regularly to the nominee under the plan to help them cope with the prevailing situation in a better manner.
c. Accidental death rider -
If the life insured passes away due to an accident, an additional death benefit amount under the rider may be paid to the policy nominees on top of the sum assured from the base plan.
d. Accidental disability rider -
A pre-fixed amount under the rider may be provided to the life assured if they experience a permanent total/partial disability due to an accident.
7. Free look period
It is a period that begins once you purchase the policy and is valid for (15) days of the receipt of this Policy in physical form and thirty (30) days in case of electronic Policy & Policy obtained through distance mode. Within this time, you may review your child insurance plan. If you are not satisfied with it, you may return the plan to the insurer within the free look period. You may receive a refund of the premium you have paid, after the deduction of the applicable charges.
8. Surrender value
If you choose to terminate the policy during its tenure, the amount you may receive is referred to as the surrender value. The surrender value may be subject to the terms and conditions laid out in the policy.
While it may help to understand the key terms in child plans, it may also be important to consider your child’s unique financial goals and the duration of the policy. For instance, if you wish to secure your child's higher education abroad, you may buy a policy with a longer duration and higher sum assured. On the other hand, if you wish to accumulate funds for your child's other future pursuits, you may want to opt for a policy with a maturity benefit component.
In conclusion, child insurance plans may be an important financial tool for parents planning to secure their child's future. By understanding the key terminologies in child insurance plans, parents may make better decisions for themselves and for their child.
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