Factors to consider while selecting a child plan
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July 2016Various child insurance plans are available today with varied features. It is important to scrutinise and draw comparisons between the different features of different policies, and choose a policy aligned with one’s needs, objectives, and risk appetite.
Essential features to consider are:
Expected requirements
Planning for your child’s future must begin at the earliest, as you get optimal returns and the child gets the money regardless of the circumstances.
The two main needs parents need to plan for are their child’s education and marriage. It helps to take into consideration the time and year that funds will be required for these events, and ensure that the policy’s maturity amount suffices to meet these future needs comfortably. Apart from academic purposes, the plan must also provide for extra-curricular interests/talents like music, sports, etc.
Inflation is a crucial consideration while purchasing a plan and deciding the amount of expenses. It is good to account for a 5-7% inflation rate.
Flexibility
Child insurance plans must permit partial withdrawals. This helps address any urgent needs without disturbing the income matrix and regular expenses. Also, the flexibility to switch between funds lets you leverage favorable market conditions while also offering the necessary protection from market vicissitudes.
Comparing investment redirection and free switches permitted in a year offers the freedom to plan finances in a more streamlined manner.
What are riders and why are they important?
A comprehensive plan is an excellent idea while planning your child’s future, as it covers all possibilities. Riders help achieve this. A life insurance rider is an add-on that enhances the primary plan’s cover if a certain event occurs.
Two of the most important riders that significantly enhance the child plan’s value are:
Premium waiver
Most child insurance plans offer the premium waiver benefit as an essential feature in the primary plan or as an option. In the unfortunate event of the policyholder’s demise, the insurer pays out a lump-sum as death benefit, waives off all future premiums and continues funding the insurance policy until maturity. The child receives the money at specific time intervals defined in the policy. This ensures that apart from the death benefit paid, the maturity benefit set for a certain age remains the way it was originally planned.
Accidental death benefit
Over the child plan’s term, one can safeguard against accidental death or disabilities arising as a result of an accident. In case of accidental death or dismemberment, this rider pays out an amount usually of the same value as the sum assured. The primary child plan will go on and pay the sum assured on maturity.
Additional term insurance plan
This does not mean taking a term insurance plan in the child’s name, it means taking an additional term insurance plan in your own name to protect your child’s future. For instance, if you feel that your child’s future education or marriage will cost around 20 lakhs, consider taking the same amount as additional term insurance. This would cost approximately Rs. 5,000 annually, for 30 years age. It makes sense to take this for a 20-year period after the child’s birth so that it comes to use at the right time.
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Source: policybazaar.com
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