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29 March, 2024 13:26 IST
Financial Planning
   
Securing your child's future
Source: IRIS (05-MAR-14)

Watching your kid grow is a delight. Every new step taken by them, their talks and the way they slowly discover the world is a wonderful experience. While you always want the best for your child and are busy making his present beautiful, it's also important to keep an eye on his future aspirations. It is believed that the biggest concern among parents today is the cost of higher education which is slated to grow at a far higher rate owing to rise in inflation. With this realization comes the need to plan for their kid's future. Today, investing in child plans are a popular way to ensure the future needs of their child are met. But before you place your hard earned money in child plans, it's important to understand what they are, their features and how they function.

Children's plans are insurance-cum-investment plans offered by insurance companies where the parent starts investing right from the time the child is born and can withdraw the savings once the child reaches adulthood. Once the policy matures, the payout can be interval based or a lump sum amount. 

The aim of a child plans is to help build a corpus for the child's future needs and secure the parents against the constraints such as inflation and rising cost of education. The advantage of a child plan vis-à-vis other investments is the risk cover provided by these plans. The payout is assured to the child even if the policyholder is not around.

While purchasing a child insurance plan, it's important to scout and look for the important riders connected with the same.  These days, most of the child insurance plans have in-built riders. If certain riders are not bundled with the product, they are available as add-ons to the policy. The riders linked to the child plan are as important as the child plan itself.  In case something happens to the policyholder, the career and aspirations of child can be safeguarded if the correct riders have been chosen.

There are 5 main types of child insurance riders:

1. Waiver of premium

This Rider is most of the times bundled with child insurance plan.  In case, due to an accident something unwarranted happens to the policyholder (permanent and total disability) and he is unable to pay the premiums, then all future premiums for both the base policy and riders are waived off till the end of the term for the rider.  Please note that the premiums paid under these riders are eligible for tax benefits under Section 80C.

2. Accident & disability benefit rider

As the name suggests, this rider covers 2 scenarios:

> Death of the policyholder 

What happens if during the policy, the policyholder (father/mother) expires? It should not make the policy redundant and the benefit should ideally still remain with the child. In some plans, the payout on death depends on the circumstances under which the death occurred.

There is one insurance company which pays 100% of the rider sum assured in addition to the basic sum assured if the policyholder dies due to an accident. But in case the death happened in a land surface mass public transport system wherein the policyholder was traveling as a fare-paying passenger, then the payout is 200% of the rider sum assured in addition to the basic sum assured.

> Permanent total disability

Under this, in case the policyholder meets with an accident and becomes permanently disabled, then the premium for the basic plan is completely waived off to the extent of the rider sum assured. This means if the premium left to be paid is Rs 1 lakh but you have taken a rider of Rs 90,000, then you would have to pay only Rs 10,000 more as the premium.

Some companies also pay 10% of the rider sum assured for the next 10 years to the family. This helps in providing that extra monetary help and also takes care of sudden financial setback that occurs after a tragic disability.

3. Critical illness benefit rider

Falling ill with a critical diseases can mean a lot of expenditure. This expenditure can not only break your savings but also give you difficulty is the timely payment of the annual premium of the child plan. For this need, most of the insurance companies provide a critical illness rider which covers the policyholder against certain specific critical illnesses. These could be major organ transplants, stroke, paralysis, complete renal failure, etc. 

Thus, if the policy holder falls critically ill, the sum assured under the rider is paid to the policy holder. The rider gets terminated and the base policy continues.  Policyholders also have another option where the entire sum assured is paid along with the riders and the policy gets terminated. However, the remainder of the base policy will continues till the end of the term and the policyholder will continues paying his premiums for the remainder of the policy.

4. Income benefit rider:

In case of death of the policyholder, it can get difficult to raise the child with financial constraints. Under this rider, in case of death of the life assured during the term of the policy, 10% of the rider sum assured is paid annually to the beneficiary, on each policy anniversary till maturity of the rider. Thus, with these annual payments the child gets monetary help during his formative years.

5. Term benefit

In the event of death of the Life Insured during the term of this benefit, the beneficiary would receive an additional death benefit amount, which is over and above the sum assured. The maximum amount of benefit that is available is equal to the basic sum assured.

Before considering a child plan, one has to identify the needs to the child. Also, it's very important that this planning for the child starts early in life to ensure the funds required at various stages gets accumulated without hurting other life goals.

There are many child plans available in the market. Some of the popular child plans are Aviva Young Scholar Advantage, Max New York College Plan, and Kotak Child Advantage Plan.  Aviva has many additional features like monthly benefits available by paying extra premium, Max College plan provides with guaranteed payouts which begin when your child turns 18. You can choose the plan as per your requirements. Identify your requirements and plan for contingencies to have the right roadmap drawn for your child future.

(Contributed by Yashish Dahiya, CEO & co-founder, Policybazaar.com)


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