Types of Child Insurance Plans: All the Important Aspects!

What is a Child Insurance Plan?

A Child Insurance Plan is a type of life insurance that helps secure money for a child’s future needs. It offers two things together. A life cover for the parents and investment opportunities to save money over the years. These plans may support parents in saving money for large expenses like school fees, college, or wedding costs.

If something unfortunate takes place with the parent while the plan term is active, the child still gets support in terms of money through this plan. This helps reduce money-related worries in the future.

There are various types of Child Insurance Plans available online. Each plan works in its own way to match different needs. Let's understand each one of them in detail.

Types of Child Insurance Plans

There are various types of Child Insurance Plans that offer support in terms of money and safeguard your child’s future. These plans help make sure that important events like education, marriage, or hobbies are well-supported, even if a parent is no longer around. The two primary forms of Child Insurance Plans are Unit Linked Insurance Plans (ULIPs) and Traditional Endowment Plans. ULIPs combine insurance with market-linked investment. They provide parents with the choice to invest their money in funds such as equity or debt funds, based on their risk level. Traditional Endowment Plans, on the other hand, offer steady growth and fixed returns, making them easier for those who do not want to take much risk. These different types of Child Insurance Plans help parents match the plan with their child’s needs and their own financial goals. Let’s understand them in detail.

Child ULIP

A child ULIP plan gives life cover and also helps grow money over time with the help of market-linked funds such as debt, equity, or hybrid. The money is linked to the market, so it may go up or down depending on the same. It may be used to plan for a child’s school, college, or other needs.

Key Features:

• Waiver of Premium: If the policyholder passes away during the plan term, the company takes care of future payments, and the plan continues.
• Monthly or Annual Support: If the parent passes away, the children may get regular payouts from the plan.
• Choice of Funds: You can choose where the money goes, low risk or high risk investments. You may also get a chance to change it later.
• 5-Year Lock-in: The plan must stay active for at least 5 years, after which you may take the money out in case of an emergency. This can be done partially.
• Tax Benefits: Premiums may get tax help under Section 80C under old tax regime. Maturity amount may be tax-free under Section 10(10D) subject to certain conditions.
• Please note: If the yearly premium for a ULIP is more than ₹2.5 lakh, the final amount may not be tax-free. In such cases, the gains would be taxed as Capital Gains @12.5%. But if the yearly premium is ₹2.5 lakh or less, the final amount may still be tax-free under current rules subject to certain conditions.

Unit Linked Insurance Plans (ULIPs)

• ULIPs (Unit Linked Insurance Plans) give you two benefits in one plan. They offer life cover and also help grow your money with the help of market-linked products.
• You can choose where to put your money, like in equity, debt, or balanced funds. Pick what suits your comfort with risk.
• You may switch between funds. This helps when your financial goals or the market fluctuates.
• ULIPs have a lock-in of 5 years. This means you must stay in the plan for at least 5 years. After that, you can take out some money if needed.
• Some plans also have a waiver of premium. This means if the policyholder passes away, the policy stays active, and no more payments are needed.
• If your annual premium exceeds ₹2.5 lakh, you may lose the exemption under Section 10(10D) and will be taxed under capital gains.

Child ULIPs and general ULIPs share the same concept. The difference between these two types of Child Insurance Plans is that Child Insurance Plans are particularly designed with a child’s future needs in mind.

Traditional Endowment Plans

Traditional Endowment Child plans give both life cover and savings. Here, you regularly pay the premium . In return, the insurance company promises to pay a collective amount once the term is over or if an unfortunate incident takes place with the policyholder.

If the parent passes away during the policy term, the children stay protected. Some plans may also provide extra money, like bonuses (if declared).

Many insurers may offer such plans with flexible payment choices. You may get an option to choose how long to pay and when you want the money. These plans may help build a savings habit while offering life cover.

For traditional endowment plans bought after April 1, 2023, tax exemption on maturity is allowed only if the yearly premium is ₹5 lakh or less. If it’s more, the payout is taxed. But the death benefit is always tax-free under Section 10(10D).

A major difference between ULIP and endowment plan is that Traditional Endowment Child plans give fixed returns, while ULIPs depend on market performance and may grow more or less over time.

Single-Premium Child Plan

Here, you pay the full premium once, at the start of the plan. No future payments are needed.

• Since the payment is made in one go, there is no risk that the plan will stop due to missed payments.
• You get a fixed amount at the end. This money may be used for your child’s education, wedding, or other big needs.
• The plan offers you life insurance during the policy term. It helps protect the child’s future if the parent passes away.
• You have the liberty to choose how long the plan lasts. For example, till the child turns 18 or 21.
• The premium you pay may get tax benefits under Section 80C incase old tax regime. The maturity amount is also tax-free under Section 10(10D) subject to satisfaction of certain conditions.
• This may be good for parents who prefer to make a one-time payment and not worry about paying again.

Regular Premium Child Plan

• Regular Premium Child Plan is one of the types of Child Insurance Plans where you pay the premium in small installments. This can be done according to your budget such as every month, three months, six months, or once a year.
• Since payments are spread out, it’s easier to plan and manage money.
• The plan gives life insurance during the term. It can help protect the child’s future if something happens to the parent.
• At the end of the plan, you get a lump sum or payouts. This might help with the child’s school, college, or other needs.
• You can choose how long the plan runs, based on the child’s age or plans.
• You may get tax savings on the premium under Section 80C incase old tax regime. The money you get at maturity is tax-free under Section 10(10D) subject to satisfaction of certain conditions.
• Some plans may also give guaranteed* additions or bonuses (if declared) to increase the final payout.

Riders available with Child Insurance Plan

Child Insurance Plans have additional features called riders. The additional features offer greater protection for your child’s future. The riders come in handy during unforeseen circumstances, including accidents, feigned illnesses and/or disability. Keep in mind that adding riders to your plan can increase the premium; however, it will increase the strength and usefulness of the Plan. It can be chosen based on what each family needs. Riders give peace of mind and wider safety for the child.

Accidental Death and Disability Benefit

This is one of the riders that gives more money if the insured person dies or becomes permanently disabled due to an accident. The amount is paid as a lump sum and may help the family cover hospital bills or make up for lost income. It may also help keep the child’s education and daily life on track.

Premium Waiver Benefit

This rider helps if the person who pays the premium passes away in an accident or cannot work because of a disability. In that case, the insurance company pays the remaining premiums. The plan continues without any gap. The child still gets the full benefits promised under the plan. The family does not need to worry about how to keep the plan going. It makes sure the child’s future is safe, even if the main earner is no longer there.

Critical Illness Rider Benefit

This rider gives a fixed amount if the insured person is diagnosed with a serious illness. Some examples are cancer, heart attack, or stroke. The money helps pay for treatment, care, or any changes needed in daily life. The rider covers only a set list of illnesses. It usually pays this amount once during the policy term. This benefit offers important support to the family during hard times. It adds extra health cover to protect the child and family from big medical costs.

Benefits of a Child Insurance Plan

Child Insurance Plans can help parents save money for their child’s future. These plans offer two major benefits. They give protection and also help you save in a planned way.

At the end of the policy, the plan may provide a lump sum amount. This sum can be used for higher education, marriage, or other needs of children. If something happens to the parent during the policy term, the insurer may not ask for future payments. But the plan may still stay active, helping the child stay protected.

Some plans also allow part of the money to be taken out during an emergency.

Compare Child Plans

There are different types of Child Insurance Plans, and each one of them works differently. Some plans may ask you to pay monthly or yearly. Some may let you pay just once. The age at which the plan ends and the money you get can also be different.

Some types of Child Insurance Plans offer a fixed amount at the end. Some may give money based on market growth (like ULIPs).

Some plans permit withdrawal of funds before it expires and have a loan option as well. You can compare payment options, the amount of coverage, coverage options and additional benefits to choose the plan that meets your needs and budget.

Wrapping It Up

Choosing a plan that matches your family’s needs can be helpful. Different types of Child Insurance Plans offer life cover and savings for your child’s future. These plans are made to support the child, even if something happens to a parent. Some plans give fixed amounts. Others depend on how the market grows. You can also find features like premium waivers, partial withdrawals, or payouts at key ages. These benefits may help parents plan better for school, college, or marriage. Remember, a child insurance plan can be one way to build support for your child’s big life moments. So, make sure you take these decisions wisely.

FAQs

Which Is the Best Insurance Plan for a Child?

There are different types of Child Insurance Plans that parents can choose from. The best one is the one which aligns with your goals. It helps parents save money for their child’s future, like for school, college, or marriage.

Most of these plans cover life for the parents. If something happens to the parent, the plan may still stay active. The child may still get the money at the right time.

Some types of Child Insurance Plans are savings or endowment plans made just for children. These plans may give money at key points in the child’s life. You can also look for features like easy payment options, fixed returns, and bonuses. These may help grow the money safely over time.

What Are Child Plans in Insurance?

Child Insurance Plans help parents save steadily for their children’s future. They are life insurance policies with added savings benefits.

If the parent (who is paying for the plan) passes away during the plan, the insurance company may pay the rest of the money or give a lump sum. This means the child can still get the money for school, college, or other needs.

Many types of Child Insurance Plans give money at important times in the child’s life. These could be when the child turns 18 or 21. The aim is to give financial help when it is needed the most, even if things do not go as planned.