Understanding a child insurance plan

Understanding a child insurance planParents are increasingly seeking child plans to secure the future of their little ones. The concept of saving systematically for your child, growing your investment and getting the benefits at the appropriate time appeals to investors a great extent. If you are new to this product and are looking to harness this opportunity for your child, here's what you need to know about these plans

How does a child plan function?

Child plans are like the regular life insurance policies. They are specifically designed to meet your child's financial needs in the future. The plan gives you the flexibility to decide the maturity period, which you can select around the important milestones of your child's life. The premium you pay towards the plan is invested in different instruments to grow over a period of time. The insured is handed the lump sum amount at the time of maturity.

Apart from systematic savings for your child, child plans offer a very important benefit called death benefit. Just like a life insurance policy, on the demise of the insured life the plan hands the sum assured to the nominee of the policy i.e. the child. This lump sum amount keeps the child's future financially secured even when the parent is not around.

Amongst the various features that child insurance offers, the best is the Waiver of Premium facility. This feature continues to cover your child even in case of the demise of the parent/guardian. All the future premiums of the policy are paid by the company and the sum assured is handed to the nominee at the time of maturity as pre-decided. So make sure the plan you opt for offers this feature as it ensures protection to your child even after you.

At maturity the insured gets a guaranteed lump-sum of money. So the policy makes payments in two conditions, one at the death of the parent and two at the time of maturity. Some plans even offer regular payouts at intervals. The sole aim of the policy is to make funds available to meet the needs of your child.

Types of child plans

There are two types of child plans that you can avail – Endowment child plans and ULIP

Endowment Child plans

These plans largely depend on the performance of the insurance company. If the insurer generates profits on investment and gives you a share, hence the value of your investment grows. These profits are shared in the form of bonuses. Such a policy mostly invests in debt funds so that the investor can avail stable returns.

ULIP Child plans

These plans largely invest in equity funds, hence are more lucrative than the prior option. The plan does carry a certain amount of risk but that gets evened out if you opt for a longer duration. This plan is available in aggressive to conservative options. A child plan that invests in equity funds is an aggressive plan whereas a plan that invests only in debt will be a conservative plan. You even have the option of switching between the funds later.