What is a Child Insurance Plan and How do Child Plans Work?


6 min read

With life being uncertain every moment, you do worry about the future of your child in your absence. This is why it’s a wise decision to invest in an insurance plan for your child right now when you can secure their future in your present. Read on to know more about how to choose the right child insurance policy for your kids.

Life insurance is not just for us adults. Even our children require and truly deserve to be insured against all the odds that life throws at them (or intends to throw at them) in the future. While we cannot control what is in hold for us, moving forward, we sure can offer our little ones the protective umbrella of insurance so that they can move ahead with pride and confidence in every area of their life. In this regard, a child insurance plan is what you should definitely consider investing in. 

What is a Child Insurance Plan?

Just like we buy insurance for ourselves, to secure our future financially, an insurance plan for children has been designed to help ensure a financially secure future for them as well. With the intense growth in competition, our children would only need to spend more and more on education, career goals and aspirations, and even personal areas of life, such as marriage. Financing all of this on your own is not going to be easy.

To make matters worse, in the untimely, unfortunate event of your death, who would take care of these essential expenses for your child? It only helps to give these grim ideas a thought once in a while. This is why child life insurance plans have been launched to help your kids realize all their dreams and goals in life without a financial worry on their mind.

How do Child Plans Work?

A child plan is nothing but essentially an insurance policy in the name of your child, with the sole purpose of helping finance their basic future needs – education, job, marriage, and the like. Once you decide to invest in a child insurance policy for your kids, you begin by choosing between Unit-Linked Insurance Plans (ULIPs) or Endowment Plans.

An Endowment Plan is a simple, most basic form of insurance product offered by insurance companies. Herein, the policyholder is assured a lump sum amount upon the end of the policy term or in case of death (whichever is earlier).

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A ULIP plan, on the other hand, serves the dual purpose of insurance and investment for the policyholder. This is unlike a simple Endowment Plan because here the investor is allowed the flexibility of choosing where to invest their money in the capital market, in addition to securing life insurance from the insurer. Both these features are included in a single integrated plan and this is what makes ULIPs more attractive and favorable to most investors.

Once you have chosen the type of plan you’d like to invest in for child insurance, you can state your payout preferences to the insurer. For instance, you’re given a choice to decide whether you would like to receive a lump sum amount at the end of the term plan or regular payments monthly or yearly.

Once these details are worked out, you can start paying the premium amount for the child insurance plan, after which it would become effective.

Benefits of Investing in Child Insurance

As the name suggests, an insurance plan for your child helps secure their future financially, so that they don’t need to depend on anyone in your absence. But besides that also, a child education insurance plan offers several benefits, some of which are:

  1. Provides backup in financial emergencies: Child insurance plans come with the special feature of partial withdrawals, meaning the insured is allowed to withdraw small amounts against the corpus built up in case of any sudden financial requirement. For instance, in case the child wants to start a special educational course abroad, you can take help from the amount generated in the plan.
  2. Offers financial protection to the child in your absence: The major advantage of a child insurance policy is that it lends financial stability to your child in the event of your untimely demise. In case of any sudden mishap, your child would still be able to follow their dreams and aspirations with regard to their educational and career goals due to the help from the payouts under the policy.
  3. Comes with add-on riders too: Besides the insurance benefit provided as part of the plan, most child insurance policies offer extra riders as well for additional benefits. A few examples include premium waiver rider (in case of demise of the parent), personal accident insurance riders, and the like. With the help of these riders, your child would be entitled to receive additional coverage over and above the one provided in the base plan.
  4. Offers tax benefits: The premium payable under child insurance plans is exempted from income tax obligations as per Section 80C of the Income Tax Act, 1961. Moreover, Section 10(10D) of the Act makes the payout delivered under the plan completely free of tax.
  5. Provides maturity benefit at term end: It is a good idea to purchase an insurance plan for your child when they’re very young. This way, you stand a chance to earn the maturity benefit at a time when they’re ready to start college. It would help take care of the financial expenses of your child’s higher education at just about the right time.

How to Choose the Best Insurance Policy for Child?

With most insurance companies today offering child insurance plans, it is a good idea to do your research before finding the best plan to invest in for your child’s future. Here are some useful tips that can help:

  • If you’re willing to take market risks, ULIP plans work really well. Also, they would be most helpful if you’re considering an investment period of at least 10 years. This is because ULIPs are likely to give higher returns over longer investment periods, allowing you to reap its benefits well.
  • If you’re not willing to take risks and wish to keep things simple, then a basic Endowment Plan would perfectly serve the purpose for you. Besides, they also work well in case of investment durations lesser than 10 years. They may not help in wealth creation (like in the case of ULIPs) but would still provide adequate risk coverage and protection against market upheavals.
  • Always choose a child insurance policy with a premium waiver option. This is because in case of an unfortunate event of the untimely demise of the parent, the financial burden of paying the remaining premium should not fall on the child. With the premium waiver benefit, the insurance company would waive off the remaining premium payable under the plan and continue funding the policy until the maturity of its term.

To Conclude

With so many benefits on offer for your child’s secure future, it only makes sense to invest in a child insurance policy. Look up online for the best child insurance plan in India 2022 and take your pick today for a healthy and stable future of your little one .

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Sep 06, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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