A Beginner's Guide To Child Plans

Child Plans are a kind of insurance plan to help you save for your child’s future expenditures. A child policy also covers life insurance on a parent’s life and ensures your child’s financial security after your parent’s demise.

The Idea Behind Investing In Child Plan

The idea behind the child plan is protecting your child’s future if something goes wrong with the parent. A child plan helps the parents to save for their kid’s higher education and other future expenses. Make sure you start early and enjoy the various advantages of compounding.

Types of Child Plans To Look At

The child insurance policies can be endowments or ULIPs. The endowment plans provide with-profit returns and sometimes returns with bonuses. Thus, returns from these types of plans primarily depend on surplus and profits made by the insurance firm.

Suppose taking risks by equity exposure doesn’t suit your appetite when planning for the child plan, endowment child plans with bonuses will be perfect for you. But, suppose your risk-bearing capability is higher or you want better returns, ULIP plans are the better choice for you. 

The amount you pay as the premiums towards the ULIPs plan will be invested in the equity funds and it will prove to be an amazing investment for your kids over the period. It is a popular concept that equities perform much better in a long run compared to other assets.

Important Features Of the Child Plans

Following are some of the key features of child plans - 

Investment Options

For child endowment plans, the policyholders do not have any scope to choose specific asset classes for investing. The insurance firms automatically select the investment for policyholders, and they are generally debt investments like corporate bonds, government bonds, treasury bills, and more.

Besides, ULIP child plans provide some options to policyholders about where their money is invested. But, a number of funds will be limited to a list of the funds managed by an insurance provider. 

Life Insurance Cover 

The child plans have got life insurance cover attached to it, and the amount assured is over 10 times the yearly premium paid. The life cover limit will be as per guidelines by the insurance industry regulator of India, the Insurance Regulatory & Development Authority. Thus, the limit of life cover for the child plan with a yearly premium of INR 50,000 will be INR 5 lakhs.  

Lock-in Period

The lock-in period refers to the time frame till which it is not allowed to make withdrawals under the plan. Child ULIP plan comes with a lock-in time of 5 years. After completion of which you can make partial withdrawals under these plans. A policyholder can choose to surrender this policy and withdraw investments after a five year lock-in period is attained. Endowment child plans do not feature any lock-in period.

Conclusion 

The education of your child is very important and you can’t let finances hinder your child’s future and pursue their dream goals. Every child has unique and different dreams, just make sure you give them a boost. 

Be supportive towards them and get ready whether it is with finances or motivational support. Make sure you save sufficiently so nothing stops your kid to pursue their dreams and attain great heights in the future!

Also Read: Know All About Child Plans - Detailed Guide