Child Plans with Assured Returns: Securing Your Child’s Future

No amount of vanilla savings from parents' income can generate enough wealth to claim that your child’s future is inflation-free. Wouldn't it be nice if you had a plan that worries with you equally for them? Guaranteed return plans or traditional insurance plans are ideal in this scenario when you are seeking protection against unforeseen events along with extra income to help them tide over any adversity.  

Points to Consider While Choosing a Child Insurance Plan:  

In case you are planning to go for any child plan, it is crucial to consider these below pointers to take the maximum benefit of the policy :  

The Benefits:  

The major benefits included in a child plan are:  

1. Premium waiver:  

Most notable amongst traditional child plans are premium waiver benefits, which are built into the policy. On the untimely death of parents, the future premiums are waivered by the insurer, but the policy benefits continue, and so do the payouts.  

2. Periodic Assured Payouts in Money-Back Child Plans:  

A set portion of the sum assured is paid out annually or biannually during the benefit period. Suppose you have a money-back child plan with a sum assured of 10 lakhs. The insurer will make periodic payments once your child is 18 years old for 3 years, amounting to 30% of the sum assured. Hence, each year, 3 lakhs of assured benefits will be paid out for your child’s expenses.  

3. Guaranteed Financial Assurance:  

Since these plans are not market-linked, they are ideal if you want a conservative instrument to save for your child’s future. It covers your child’s major expenses like education, marriage and even health, regardless of market performance.  

4. Maturity and Death benefits:  

On maturity, a lump sum of funds is paid out to your child for essential expenses. Even after the policyholder or parent’s demise, the policy continues till the maturity amount is paid out, removing any financial burden on the family. 

Lock-in Periods:  

Due to its tenure and objective, every assured child plan has a lock-in period which is the minimum tenure during which you cannot withdraw funds. The ideal duration of lock-in is usually 5-10 years, depending on the type of insurance product chosen. It helps the accumulation of funds, ensures disciplined savings, and prevents unnecessary expenses. A long lock-in period also enables you to have better returns which is ultimately beneficial for your family.  

Loans are also allowed in some policies to cater to the sudden requirement of funds. Getting to know all the nuances of a plan helps you utilise the policy to the best of your advantage.  

Flexibility Offers:  

The policy can be customised to suit your special needs if you can manage to add some riders. Along with riders, there are top-up options, loan against policy facilities and flexible premium payment terms.  

1. Death and Disability Rider:  

In case of accidental death or disability, some policies offer additional top-up on the sum assured so that it provides extra financial support your family needs.  

2. Income Benefit Rider:  

Sometimes, you might need funds to manage daily and regular expenses after an unforeseen emergency. This rider provides regular income to the family for a certain amount of time to tide over the immediate mishap.  

3. Critical Illness Rider:  

If, as a parent, you are diagnosed with a critical illness but do not want to use the funds kept aside for your child, this rider will help you cover all the medical expenses and other financial needs during the illness period. 

4. Term Rider: 

You can even add additional term insurance coverage to your child's plan that can take care of immediate needs after the parent’s demise.  

5. Policy Loan Facility:  

If you want to keep the policy uninterrupted and minimise withdrawals, you can also take a loan against the policy to meet urgent financial needs.  

Tax Benefits:  

Children’s plans also come with tax benefits to maximise returns and accumulation of wealth.  

1. On Premiums Paid:  

The child plan premiums are tax exempted under section 80C under the Income Tax Act, 1961, up to an amount of 1,50,000. 

2. On Maturity Benefit:   

The maturity benefit paid out is also exempted from tax under 10(10D) provided that the premium does not exceed 10% of the sum assured applicable to policies issued after April 1st, 2012. For policies issued before this date, the premium percentage should be 20% to avail of this benefit. Also, the total premium should not be more than Rs. 5 lakhs per annum to avail of the 10(10)D benefit. 

3. On Death Benefit:  

Any amount received on the death of a parent from a child’s insurance plan is completely tax-free under section 10(10D), without any upper limit.  

Policy Payout Structure  

This is one of the key aspects of a child insurance plan that defines how and when the benefits will be distributed for maximum advantage. The various modes include:  

1. Lump Sum Payout:  

The entire maturity benefit sum is paid out at the end of policy termination for any milestone expenditure like a college education or marriage.  

2. Regular Payouts:  

In some policies, you have the benefit of payouts in a phased manner to assist in every milestone of the child’s life, such as college education, going abroad for work, or settling down after marriage.  

Along with these private traditional plans, there are some affordable government-aided insurance plans exclusively meant for a girl child. Sukanya Samriddhi Scheme (SSY) is a girl child plan launched by the Government of India, that covers the requirement of a girl child till the age of 21 years. It is a tax-exempt, fixed interest rate (8.2%) product that allows partial withdrawal from 18 years of age if your daughter gets married.