Child plans are insurance cum investment plans that help you create a corpus for your children’s future over a period of time (policy term). At 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 paid to the child. Some plans also offer monthly income in addition to the death benefit to meet 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 fulfil your children’s dreams and save money for their education and marriage. Child insurance plans help you build a corpus towards these goals and protect your children’s future in your absence. Therefore, they are a good solution for someone who wants to work towards these goals while minimising the risk. 

Some of the other benefits of a child plan are: 

• Use as 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 hospitalised due to a medical condition or accident, these plans allow you to withdraw a lump sum amount from the yet-to-mature policy. This payout 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 tax-deductible under section 80C of the Income Tax Act, 1961. Maturity benefits are also exempt from tax as per section 10(10D).

Investing in child plans is a great way to secure your child's future. Starting investments early will help you create a large corpus of money that can cover the costs of your child's education and other expenses.

For example, if you invest Rs. 5,000 monthly for 20 years, you can accumulate Rs. 28,45,000 at an 8% return rate. However, if there is only a 5-year delay in beginning investments, the amount invested per month would need to be increased to Rs. 8,500 for 15 years to reach the same amount of money. This means delaying your investment by 5 years could cost an additional Rs. 3,30,000!

So, it makes sense to buy a Child Plan as soon after birth as possible - many plans start from 14 days old with policy tenures ranging 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 and aspirations. For instance, if you are buying the policy for your child’s education, factor in costs towards extra-curricular activities, travel, boarding, and 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 ranging from 15 to 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 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 a withdrawal facility at an important milestone in 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 payouts 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 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.