What is the Deferment Period Under a Child Plan?

As parents, if you want to secure the future of your child by saving enough capital to fulfill the dreams and career goals of your children, nothing can suit more than a child insurance plan. Thus, a child plan is the most recommended savings policy that can be used by parents to accumulate wealth to allow their kids to make their future dreams come true.

Under child plans, the owner of the policy is the one who buys the plan and who pays the premium, which, in most cases, is done by parents. Thus, you – the parent – becomes the owner of the policy while the child receives protection under the plan.  Later, the child is made the owner of the policy when he/she reaches a particular age.  The time period from the purchase of the child plan till the child becomes the owner of the plan is called the deferment period.

Let us discuss the meaning of deferment period in insurance and the role it plays in child plans.

Deferment Period in Children’s Policies

So, as discussed above, deferment period is the time duration from buying a child plan till the time when your child is made the owner of the policy. Further, the time duration from when your child is made the owner of the policy till when the policy matures or till the maturity date of the policy is termed as the deferment period stage two under child plans.

Ways in Which Deferment Period in Insurance under Child Plans Function

There are 2 stages of deferment period under which a child insurance plan works, the first is known as the deferment period, while the second one is the insurance period. As already discussed the deferment period is the duration from the start of the child plan till the child is made the owner of the plan. On the other hand, the insurance period is the time duration from the child becoming the policy owner till the maturity date of the policy. So, when the child turns 18 years of age and becomes the owner of the policy, the risk coverage of the plan starts.

Now there are certain scenarios in which you would like to know what exactly will happen to your child investment plans.

What if You Want to Surrender the Child Plan?

A child saving plan allows the policyholder to surrender the plan after three years. In this case, you would get the definite surrender value that includes 90% of premiums that were paid (excluding the ones paid in the first year) after the deferred date. In case the deferment period is less than 10 years, you also get extra 30% of premium money that you have paid.

If the deferment period is 10 year or more, you can receive cash 90% and 30% of the paid premiums given after the deferment period in insurance is completed.

Top 3 Benefits of Buying a Child Plan

There are numerous benefits of investing in a best child plan. Here are some such benefits mentioned below:

1. Benefit received at Maturity  – The child plan allows the insured or the nominee to accumulate a lump sum as maturity benefit that can be used for various requirements of the child.  Along with sum assured, the maturity benefit also includes bonuses that are announced at the time of maturity.
2. Benefits received due to Death of the policyholder – Child insurance plans also offer death benefits under the policy. In this case, if the insured or the child who owns the policy dies at the end of the deferment period in insurance, you get the death benefit. However, if the child dies before the end of the deferment period, the policyholder can receive the entire premium paid till the time of the child’s death.
3. Tax Benefits under child plans – As per section 80C of Income tax, the premiums paid for child insurance policy are entirely exempted from tax.  In fact, the maturity amount received is also exempted from income tax as per section 10D.