A Guide on How Child Insurance and Term Insurance are Different

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Parenting brings along a lot of new responsibilities together with the unbound joys of life.  Often, the birth of a child makes people start planning for investments to secure the future of their baby. 

The upbringing of a child is a huge task as it involves a lot of responsibilities. Apart from taking care of the regular expenses like food, nutrition, health, and a good lifestyle, you also need to look after the higher education and career of your child. All these require money and what can be a better option than insuring your child’s future with a term insurance plan or a child insurance policy. These insurance policies allow utmost peace of mind and support the child in their future endeavors despite your absence.

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What are Child Insurance Plans?

A child insurance plan is an investment especially designed to cater to a child’s future financial needs. Parents can buy such plans to cater to certain future goals like higher studies in the dream university abroad, a specific degree or course of his/her choice and so on. Further, the child insurance plans also offer life coverage wherein if the policyholder (parent) dies during the term of the policy, the plan offers death benefit to the child.

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Features of best child insurance plans

  • Under this plan, the parent of the kid who buys the plan is the policyholder, whereas the beneficiary of the plan is the child
  • A child plan is a dual investment policy that offer double benefit of life insurance as well as a corpus for child’s future
  • The policy allows the child to receive death benefit in the event of unfortunate demise of his/her parent (the policyholder)
  • The payouts received under a child insurance plan is pre-decided. The nominee or the child can receive the payment in regular time duration
  • Child term plans also allow the benefit of premium waiver, which can be availed as a rider or in some cases as a unique permanent feature of the plan
  • The premium waiver option lets the plan continue even if the premiums of the plan are not paid due to any reason such as death/disability of the policyholder. In that case, the unpaid premiums are borne by the insurance company keeping the policy intact
  • Once the plan matures, the child receives the maturity amount to fulfil the particular purpose like higher education or wedding etc.
  • The premiums of child insurance plans are on the higher side as compared to the term insurance plan

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What are Term Insurance Plans?

A term insurance plan is a pure form of life insurance that simply covers the life of the insured without allowing any investment benefit.  The term plan is bought for a specific duration of time and offers the nominee of the plan a death benefit in case the insured of the plan dies during the policy tenure.

Read More: How Is It Beneficial To Buy Term Insurance Online?

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Features of term life insurance plans

  • The premium of a pure term plan is generally easily affordable
  • Term plans are available for a fixed duration of time. For example, 20 years
  • Under term plans, the nominee receives only death benefits. The plan doesn’t have the option of maturity benefit
  • So, if the policyholder outlives the policy tenure, he/she receives no maturity amount
  • Term plans called TROP or Term Return of Premium are the only plans that allow maturity benefit to the policyholder. Under such plans, you can get the maturity amount if you outlive the plan tenure. But TROPs levy greater premium charges as compared to pure-term plans.

Know More: Waiver of Premium Rider in Term Insurance – A Detailed Guide

Differences between a Child Insurance Plan and a Term Insurance Plan

Here are the basic differences between best term insurance plan and child insurance policies as mentioned in the table below:

Child Insurance Plan Term Insurance Plan
Provides coverage on life as well as maturity benefits Provides coverage for life only and no maturity benefits
Aims to secure the future of the child financially Aims to secure the financial future of your family members and loved ones in your absence
The plan beneficiary is the child The plan nominee can be anyone in the family including the child
The premium price is higher because of the maturity benefit option The premium price is relatively low because no maturity is offered
A child plan comes with death benefit (if the policyholder dies) as well as maturity benefit if the policyholder outlives the plan A pure-term plan allows only death benefit and no maturity is offered here, except on TROP (Term Return of Premium) Plans which allow maturity benefits
Unit-linked child plans allow partial withdrawal The term plans do not allow any partial withdrawals as these plans have no saving element
Tax benefits are available under child plans Tax benefits are available under term plans. Also, tax exemption on critical illness riders is available if opted for under term plans.

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To Conclude 

There are few key differences between Term plans and child insurance plans. But one main point of similarity that these two have is regarding the plan intent. Be it a child plan or a term plan, both of them are designed to allow financial security to your family and kids during a time when you are not around. However, child plans are especially meant for the better future of your child and to secure the career of the child. On the other hand, term insurance plans are purchased to allow monetary stability to your family as a whole. So, it is up to you to choose a plan that suits your purpose better.

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FAQs: Child Insurance vs Term Insurance

Can we take term insurance for a child?

Yes, you can definitely buy term insurance policies to ensure the financial security of your child. The child insurance plans build corpus for the future of your child over the term of the policy. Once mature, these plans allow lump sum pay to the child which can be used for the higher education purpose of the child as well as for other expenses like weddings etc.

What is the meaning of child insurance?

Child insurance plans are dual purpose plans which allow the option of investment and insurance. These plans offer financial safety to the child to fulfil his/her dreams and career goals.

What is the difference between life insurance vs term insurance?

The key difference between a term insurance and a traditional life insurance plan is that the term plans offer only death benefit in the event of demise of the insured, whereas under a life insurance plan the policyholder can avail maturity benefits along with the death benefit offered to the nominee of the insured in the event of policyholder’s death.

Which plan is best for children?

Below are some child insurance plans to opt for:

AEGON Life Rising Star Insurance Plan
Bajaj Allianz Young Assure
IndiaFirst Happy India Plan
Aviva Young Scholar Secure
Bharti AXA Life Child Advantage Plan
Kotak HeadStart Child Assure
Max Life Shiksha Plus Super
PNB MetLife College Plan

When does a child plan allow you to withdraw money from the plan?

Withdrawal of the entire money is allowed after 5 years of the policy. Most child plans also allow partial withdrawals which can be used towards the liquidity needs of the child.

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Feb 23, 2023
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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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