Child life insurance is a form of permanent life insurance that insures the life of a minor. It is usually purchased to protect a family against the sudden and unexpected costs of a child’s funeral or burial and to secure inexpensive and guaranteed insurance for the lifetime of the child. It offers guaranteed growth of cash value, which some carriers allow to be withdrawn (collapsing the policy) when the child is in their early twenties. Child life insurance policies typically offer the owner the option to purchase, or in some cases obtain additional guaranteed insurance when the child reaches maturity.
a child insurance plan offers a lump-sum payment on the death of the policyholder, but the policy does not end. All future premiums are waived and the insurance company continues investing this money on behalf of the policyholder.
The child gets the money at specified intervals as planned under the policy. In this way, the parent ensures that his child's needs are taken care of even if he is not around.
Almost all life insurance firms have child plans in their portfolio of offerings. Some of these are market-linked policies, which allow policyholders to invest in equities and debt, while others are traditional plans, which invest only in debt. In case of a life insurance policy, the premium paid for a child plan is eligible for tax deduction under Section 80C, while any income from the plan is tax-free under Section 10 (10D).
What are the Benefits of Buying a Child Plan?
There are several benefits of buying a Child Insurance Plan which are:
Every child plan either unit linked or traditional offers death benefit which is Sum Assured in the case of the traditional child plan and higher of two (Sum Assured or Fund Value) in case of the unit linked child plan. The death benefit is payable in the event of the death of the life insured during the policy term.
At the maturity of the plan, the sum assured along with some guaranteed benefits are payable in the traditional child plans where as in the unit linked child plans, the total of fund value is paid at the maturity which no. of units multiplied by net asset value (NAV).
Periodic Money Backs
Most of the child plans offer periodic payouts or money backs at regular intervals to help in meeting the financial requirements at various life stages of a child.
Guaranteed additions are allocated to the policy corpus or sum assured in terms of additional sum assured in traditional child policies and in terms of additional fund units in case of the unit linked child plan. It is usually paid at the maturity of the policy.
Under a child insurance plan, you have the option to make partial withdrawals. You can also liquidate the plan via partial withdrawals and could suffice the financial requirement via such withdrawals from your child plan.
Since child plans are basically an endowment policy, it offers loan which can be taken against your policy once the policy has acquired surrender value. The loan amount ranges between 80% to 90% of the surrender value with applicable interest rate by the insurer.
Various add-on or riders can be taken with the child plan to enhance the protection and life coverage. To avoid certain eventualities during the policy tenure rider benefits can be attached by paying extra premium. Few vital riders which can be taken are waiver of premium, accidental disability, critical illness, etc.
A child insurance plan duly provides the tax benefits. You can avail the tax deduction for the premium amount under section 80C and income from the plan is tax-free under section 10 (10) D of the Income Tax Act, 1961.