Personal Finance Blog India –

Child Plans – How They Work & Should You Buy Them?

Child – parent relation is of natural love & affection and planning for there education/marriage is of prime importance for them.Thats were Child plans comes into focus.Such plans are being offered by insurance as well from few mutual funds.Today we will have some thoughts on Child plans offered by life insurance companies.

Most of the insurance companies offer endowment[bonus plans] as well unit linked children plans.Today we will discuss in relation with the endowment plans only.

Common Futures Of Child Plans

  1. Under child plans parents are insured and child is beneficiary,till child attains age of 18 yrs benefits are paid to appointee.
  2. Guaranteed Payouts – These payouts are based on fixed percentage of the sum assured.Most of the plans offers the payouts in the structured way in the last four years of policy, probable years of childs graduation.There are few policies which make payouts in the intermediate periods approximately when child is in 10th, 12th and graduation period.
  3. Payouts – Payout periods differ from policy to policy.Few policies offer payouts after completion of selected years. General payouts are 20% of SA,25% of SA, 25% Of SA & 30% + Bonus accumulated as last payout.
  4. General Death benefits – under event of unfortunate death of insured parent,following benefits are generally paid :
  • Sum assured : paid immediately.
  • Waiver of future premiums – Most of the plans have this in built future. All future premiums are paid by company and policy continues.
  • Guaranteed payouts – Child will receive structured payouts as  per terms of the policy.
Few plans like from Kotak Life insurance offer Waiver of premiums through separate rider and not built in the policy.So one should check for it as waiver of premium & accident disability riders are must have if any one is opting for the child plan.
What are the issues with Child Plans
  • High premium rates – As such plans are loaded with number of features, premium rates are generally  high.
  • Conflict with other future plans – Due to high premium rates,it can create conflict with your other future plans like buying home,own retirement planning etc.
  • Returns – Its not possible to compare the returns of such plans with any other as all features are not comparable.Still,if death benefits etc left aside these plans will offer you returns in the range of 6-6.5%.
  • Mere child plans may not complete your requirement of insurance.

What is premium payable for Child plans :

Each insurance plan will have a unique insurance premium.But for sum assured of Rs. 10 lakh, parents age of 30 yrs, Child’s age 05 yr and for coverage upto his / her age of  22 yrs, average premium will come around Rs.50,000/-.

Should you opt for Child plans

Their are multiple opinions across experts of this sector.Most of them are of opinion that Mutual funds + term insurance combination will work better.But, I hopefully think that they should have added risk premium of equity markets.

Though I am not expert in this field ,as far my opinion is concerned  tax free, safe returns of 6-6.5%  + death benefit isn’t a bad bet, Finally planning & returns are both different things…but as already stated above, main disadvantage of such plans is that high premium rates can create disturbance in future plans like home purchase or any other investment should take this point in mind before opting for any child plan…isn’t it??What do you think?

Also Read – HDFC Mutual Fund Child Gift Plan.

Category: Insurance

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