What Is Child Insurance Plan? A child plan is like a superhero for your child’s financial future. It’s a smart combo of protection and growth. If something unfortunate happens to a parent, it steps in to shield the child. Plus, it helps you grow a financial safety net for your little one’s dreams. Furthermore, child insurance policies offer flexible payouts at significant junctures that can efficiently pay for a child’s education at various stages.
The main motto of a parent’s life is to secure the future of their child and give them everything more than their child needs. The biggest worries of parents about their children are their marriage and education. They want to see their children achieving the biggest life goals and become very successful. But, to become successful one must pay the large amount of money and increasing inflation, cost of education and other expenses are not hidden from the parents. So, to ensure that money do not become the hurdle in the bright future of the children, parents opt child insurance plans.
The child insurance plan can also be known as the child education plan, because the first and foremost objective behind investing in the child insurance plan is the education of the child.
Child Education Plan
The goal of the child education plan is to support kids as they pursue their educational goals in any field they decide on. These plans include a life insurance component and ways to maximize discounts on timely premium payments. With the one-time payment at the end of the insurance term, both the parents and child will not face financial hardship when it comes to paying for higher education.
What Is The Work Procedure Of a Child Insurance Plan?
A child insurance plan serves two distinct objectives for investment that a child insurance plan helps in achieving:
- It provides financial assistance for the future educational goals of the child in higher studies.
- In case of premature or untimely death of the parent, the insurance provides financial protection to the child for his future goals and financial stability.
Whether The Child Insurance Plan Is Tax-free or not.
As most of the life insurance plans enjoy the relaxation in tax, the child insurance plan is also exempted from tax as it is a life insurance cum investment plan. The child insurance plan enjoys exemption from tax, which are as follows:
- If the insured invests an amount of up to Rs. 1.5 lakhs, then this amount is deductible from the financial year’s taxable income.
- The death benefit received by the family of the deceased from the life insurance is not taxable.
- After the lock-in period of the child insurance plan, the partial withdrawal is tax-free.
- Section 10(10D) of the Income Tax Act, 1961, allows tax exemption on the amount received after the maturity of the child insurance plan, to the following extent:
- In any financial year, the investment of the insured should not exceed 10% of the life cover in the child insurance policy.
- The investment made in the Child Unit Liked Insurance Plan, should not exceed Rs. 2.5 lakhs annually, in a financial year which is purchased on or after 1st February 2021.
Read More: What Is Money Back Plan
What Are The Features Of The Child Insurance Plan?
The child insurance plan consists of different features, which are as follows:
Benefit after the maturity of the plan
The amount guaranteed plus any cumulative bonuses are essentially what the maturity benefit is. Remember that bonuses will only be earned if the policy is a participating one. It depends on the product you’ve selected, only accrued bonuses might be reimbursed. The maturity benefit is available to you as the policyholder. The maturity benefit might be paid as a one-time distribution, guaranteed payouts, or a combination of both.
Benefit after the death of the insured
You put money into your child’s future plans because you don’t want them to suffer. A distinctive feature of kid plans is that the policy does not end in the event that the life insured passes away. Up to maturity, the insurer will not charge any more premiums. The child is eligible to receive the death benefit if you pass away during the policy term owing to an unfortunate event. The promised amount plus any earned incentives will make up the death benefit.
If the child is a minor, the appointed person (who you chose when you bought the policy) will receive the death benefit coverage. They are in charge of keeping the money secure until the child is 18 years old. The benefit of death will be distributed right away. The policy will remain in effect until the conclusion of the policy term, and there are no further premium payments necessary. And sure, all policy benefits will remain in effect.
Customization of the payouts
The payouts can be altered to suit the needs of the child. Assured Payouts are regular payments, either yearly or every six months, that you receive during a set period. These payments are a fixed portion of the total assured amount. Depending on the product you select, the benefit payment schedule and frequency will change.
Some plans give you the choice to delay receiving payouts until a certain number of years have passed after the term for paying premiums has ended. This stipulation might not apply to all plans.
To meet the child’s educational milestones, periodic payments are typically chosen for recurring costs like tuition, any extracurricular activities they might participate in, etc. A one-time payment plus any accrued bonuses. Only if you have a participating child plan will bonuses be paid. This can be received as a death benefit or when the policy reaches maturity. As a hybrid of the two. If you want to pay for both your marriage expenses and your educational goals, this is a good option.
Important Information: Not all insurance plans are the same when it comes to tailoring your payout options. It’s crucial to thoroughly read and understand the policy documents to know what’s available.
Enhancement of the cover amount
You can choose to increase the cover amount by 50%, 100%, or 200% when you buy the policy. This is an option that requires an additional premium. In the unfortunate event that you pass away while the policy is in effect, your nominee will be paid the additional sum assured right away.
They will have the choice of receiving the sum assured as an annual/monthly income, a lump sum, or a combination of both.
Important Information: Different insurers and products offer different levels of enhanced coverage. Make sure you carefully read the policy wordings.