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Sowmya Sundar

EVERY parent dreams to see his or her children grow into a successful person.

To make your dreams come true and meet parental responsibilities, you have to think ahead and provide for future expenses as your child crosses various milestones in his/her life. Help is at hand. Insurance policies targeted at children are now available.

Insurance policies for children can be primarily divided into three types.

Endowment child plans: These plans allow you to accumulate through a specific period. At the end of the term, the sum assured plus accrued bonuses and a terminal bonus, if any (in the case of a participating plan), would be payable.

If the policyholder dies during the policy term, a sum equal to the sum assured is paid immediately. In some cases, benefits along with the bonuses are paid on maturity, over and above the payout on death, as in the case of ING Vysya Life and in a variant of HDFC Standard Life's plan.

Money-back child plans: These plans make lumpsum payouts at certain intervals to meet the expenses that crop up at regular intervals, say, higher studies. They can be structured to mature when your child attains a specific age such as 18, 21 or 24 years so that money is available to meet crucial commitments.

The maturity age differs on the plan chosen. Some plans of Prudential ICICI and AMP Sanmar, for instance, offer freedom of fixing the maturity dates, while others, such as LIC Komal Jeevan, have fixed terms.

Unit-linked child plans: Unit linked plans track the market and provide flexibility to an extent. They can be structured to your requirement. You can either withdraw the amount regular intervals or allow it to mature till a specific date.

Now to discuss the nitty gritty of a child policy (the unit-linked child plans will be compared and contrasted in the next issue.)

Determine the insuree

An important decision to be made while choosing a child policy is whom the policy should be taken on — child or the parent. The payouts and benefits depends on it. Policies taken on the parent protects the child against the death of the parent and ensures that a lumpsum is available to the beneficiary (child) to meet his/her future needs. A number of plans also go a step forward and pay a lumpsum on maturity regardless of the death benefit, as in the case of ING Vysya Life and HDFC Standard Life.

Policies taken on the child are juvenile policies and the risk on these policies commence only after the child becomes seven.

If the child dies before seven, all premiums are repaid with or without interest as the case may be. For instance, Allianz Bajaj refunds premiums without interest and the policy terminates if the child dies before seven.

If death occurs after seven, the full sum assured plus bonuses are paid to the beneficiary. In the case of Max New York Life, the premiums are refunded with interest (rate determined by the company) and accrued bonuses are also paid out immediately.

Impact of risk premium

If the policy is taken on the parent, then the risk premium is based on his/her age, and, hence, will be higher compared to those charged in a policy where the child is the insuree. Therefore, the premiums for a policy taken on the parent are higher compared to those taken on a child.

Waiver of premium

Waiver of premium (WoP) is a feature that waives all future premium payment on a policy on the death of the parent or proposer.

This feature is important when the parent dies and the policy demands continuance of premium payments till maturity to be eligible for maturity benefits. Child plans from insurers such as HDFC Life and SBI Life have an in-built WoP feature.

These policies waive all future premiums on the proposer's death without any extra premium payment. Others offer a WoP rider or a payor benefit that can be opted along with the base policy for an additional premium. The WoP rider also covers total or partial disability due to an accident in some cases.

In the case of ICICI Prudential, though the policy has an in-built WoP rider, it covers or waives premiums only on the parent's death and not on disability. For protection in the case of total or partial disability due to an accident, an additional WoP rider can be opted for at an additional premium.

In the case of Allianz Bajaj and Birla Sun Life — "My child" policy, an all-encompassing rider that covers death and permanent or total disability is available for the proposer.

It is advisable to always append a WoP or a payor benefit rider along with the base policy, regardless of who the insured is, as it will ensure that the policy is in force till maturity and benefits accrue to the child when needed.

The decision to take the cover on the child or the parent also depends on whether your aim is to provide risk cover to the child or accumulate savings. Policies where the child is the insuree provides risk cover to the child while money back policies are oriented towards savings as they have lower terms compared to endowment plans.

For instance, if your aim is to provide risk cover, LIC's Jeevan Sukanya targeted at female lives is attractive.

The policy not only covers the life of the female child till she turns 50, but also extends cover to the husband. If the husband dies before the insuree, she gets a lumpsum and the cover on her life continues. It also pays a lumpsum at age 20 and bonuses accrue through the term till age 50.

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