Child plans are insurance cum investment plans that help an individual create a corpus for children’s future, over a period of time (policy term). On maturity, these plans pay a lump sum amount which can be used to pay your child’s college fees or marriage expenses. The insurance cover amount in these plans is at least 10 times the amount of premium paid.

In the event of the policyholder’s death anytime during the policy term, the child/nominee receives the lump sum amount (death benefit) as promised at the time of purchasing the policy. But the unique point about child plans is that the policy does not end here. All future premiums are paid by the insurance company and the maturity benefits, at the end of the policy term, are also paid to the child. Some plans also offer monthly income in addition to the death benefit to meet the day to day expenses. A child insurance plan thus offers dual benefits of insurance and investment and should be an integral part of financial planning for your child’s future.

As a parent, you want to fulfill your children’s dreams and save money for their education, marriage. Child insurance plans not only help you build a corpus towards these goals but also protect children’s future in your absence. Therefore they are a good solution for someone who wants to work towards these goals and minimize risk at the same time.
Some of the other benefits of a child plan are:
Use as a collateral - If you plan to avail an education loan for your child in the future, then you can use the child insurance plan as collateral.
Partial withdrawal - If the child is hospitalized due to a medical condition or accident, these plans allow you to withdraw a lump sum amount from the yet-to-mature policy. This pay-out will act as an add-on to your health insurance plan.
Tax benefit – As per the existing tax laws premiums paid towards child plans are exempted under section 80C of the Income Tax Act. Maturity benefits are also exempt from tax as per section 10(10D) of the Act.

With the ever-rising cost of education and all the activities, inputs that are required for a good upbringing of your child, you need to be smart about your financial planning. Child plans offer a disciplined and secure method of saving to safeguard your child’s future. Starting early on this journey will help you build a significant corpus for meeting the future expenses of your child’s education.

If you invest Rs. 5,000 a month for 20 years, your corpus can grow to Rs. 28,45,000 (@8% return). On the other hand, if you delay by just 5 years, you will have to invest Rs. 8,500 a month for 15 years to reach the same corpus. In effect, the 5-year delay has cost you an additional investment of Rs. 3,30,000!

Therefore buying a child plan as early as possible is the prudent thing to do. Parents can purchase a plan for a child as young as 14 days old, with the policy tenure varying from 15–25 years.

Financial goal and cover amount – The first step is estimating the amount of money you will need to fulfill your child's interests, aspirations. For instance, if you are buying the policy for your child’s education, factor in costs towards extra-curricular activities, travel, boarding etc. in addition to the course fee. Use this future expense calculator to ascertain the inflation-adjusted amount you should aim for.
Policy term – A child plan can be purchased for a tenure varying from 15–25 years.
Choose a policy term that coincides with an important milestone for your child. For instance, if your daughter is 2 years old today and you expect her to start her college at age 18, buy a policy with a term of 16 years. Fund options – Most child insurance policies offer multiple fund options with varying degrees of risk (equity-debt allocation). Based on your financial risk appetite and investment tenure, choose the fund that meets your requirements. Additional features - You should also check if the plan has additional features like withdrawal facility at important milestone of your child’s life, assured bonus and loyalty additions.

Child insurance plans are of two types:

• Investment plans - Plans that invest in the equity/ debt market (Non-Participating Unit Linked Insurance Plans). In this plan, you pay regular premiums or for a limited period which are invested in both equity and debt instruments. Being market linked, these plans can give good returns over a long policy term. Based on your financial risk appetite, you can choose from fund options with varying degrees of risk (equity-debt allocation).
• Savings plan - Plans that do not invest in the market (Non-Linked Participating Insurance Plans). In this plan, you pay regular premiums or for a limited period and at the end of the policy term, you receive guaranteed pay-outs every year. Additionally, you receive any accrued bonus.

In both plans, in the event of your death, your child/nominee receives a lump sum amount (death benefit). In addition, the policy continues and all the future premiums are waived by the company. The child will still receive the maturity benefits once the premium payment term is over. In addition, he/she will also receive the accrued bonus.