CHILD INSURANCE: Too Little Return On Child Plans

-R.Kain

In order to assist build a corpus over time, life insurance firms that sell child plans combine insurance with investments. When the policy matures, the insurance provider will pay a lump payment that can be applied to the child's higher education costs or wedding costs. Maturity benefits are also exempt from tax under Section 10(10D) of the Act, in addition to the tax deduction provided under Section 80C of the Income Tax Act on the premium paid.

Either conventional policies or unit-linked insurance plans are available for children. With child plans, insurers include extras like accidental death and disability coverage. Make sure the plan contains a premium waiver provision in the event of the policyholder's death before purchasing a child plan.

The child or another nominee will get the entire death benefit in the event that the policyholder passes away during the policy's term. These plans also provide the option for partial withdrawals in the event of any pressing financial needs, such as medical care.

To establish a sizeable corpus for the child's financial needs, it is preferable to purchase such a policy with a tenure of 15 to 25 years when the child is still very young because of the rising expense of higher education. The policy can be used as collateral for an education loan by the parent.

SMALL RETURNS

The returns from these plans are only 5-6%, though. In order to ensure the financial stability of the family, a parent should ideally purchase a term plan. When compared to conventional insurance policies or even unit-linked insurance plans, Term Plans are more affordable.

If you decide to cancel/surrender the insurance, you would lose the majority of the premiums you have paid over the years because the policy's surrender value is so low. Additionally, child plans have relatively little insurance coverage.

It is preferable to invest in diversified Equity,  Mutual Funds and PPF for a girl child, a Higher-Education savings account, Samriddhi Yojana-Sukanya

Courtesy: Financial Express