How to choose a child insurance plan

Wondering how you should choose an insurance plan for your child? Here are four simple tips.

One, it is recommended that one starts planning and investing for the child’s future as early as possible. Most insurance companies offer plans with maturity benefits structured to coincide with the child attaining 18 years of age or ‘timed’ release of payouts at critical life stages, starting from 18 years onwards.

Since these plans offer a long horizon to invest, they also benefit from the powers of compounding, helping build up a corpus.

Two, invest in plans that offer premium waiver benefit. Most child plans offer premium waiver benefit either as an option or as an essential feature in the main plan. This is a critical feature in child plans. In case of the death of the parent, the premium waiver feature ensures that future premiums, from the date of death, are waived off, while the insurer continues to fund the insurance policy till maturity.

This ensures that the maturity benefit that was set for a certain age remains intact as planned, in addition to the death benefit paid.

Three, choose a plan that offers a mix of investment options and adequate risk cover. One should invest in a child plan that offers a balanced mix of capital protection and growth. For instance, if the cost of an engineering education is currently ₹6 lakh, it will be close to ₹20 lakh by the time a child born today goes to college.

So, there is little point in having an investment plan that provides only ₹6 lakh when the child turns 18.

Also, selecting a plan that has the systematic transfer option will ensure gains in investment are protected.

Four, one should take adequate risk cover to ensure that the death benefit is a substantial lumpsum that can fulfil the child’s needs in case of demise of the breadwinner. Child insurance plans also have dual tax benefits — premiums paid are eligible for deduction from taxable income under Section 80C and the maturity amount is exempt from tax under Section 10 (10D) of the Income Tax Act, 1961.

As always, it is important to read the product brochure and understand the cost of the product. Comparing the products available in the market on their charges, flexibility offered, reputation of the insurer, claims ratio (available on the websites), and their service quality perception is also equally important.

It is also advisable to do some thorough research by probing the insurance agent on features, charges and past performance before the purchase.

The writer is Chief Strategy Officer, IDBI Federal Life Insurance