Child Plans: Coverage, Claim & Exclusions

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As a parent, it is important to have a proper financial planning in place in order to provide a safe future to your children. These arrangements help children to get financial support during the journey of attaining important milestones in life. Child plans, a type of life insurance, play a significant role in helping parents fulfil this responsibility.

What is Child Plan?

A child plan is a type of life insurance that helps financially secure the future of your child. It gives the assurance that the child will get the financial support from the insurance even if something untoward happens to the parents. A child insurance plan offers life cover and provides flexible payouts during crucial milestones of your child’s life. Moreover, some of the best child plans are designed keeping in mind the fact that life is unpredictable. It helps to build a corpus, which will help the parents manage major expenses related to children like higher education. This corpus can be used even during unfortunate incidents like untimely demise of parents.

Types of Child Plans

Child plans in India are of 2 types – traditional plans and Unit Linked Insurance Plans (ULIPs). Traditional insurance plans can be endowment or whole life insurance plans. These are a mix of insurance and savings. Traditional plans come without risks and they provide fixed returns. On the other hand, ULIPs are a combination of protection and investment and come with risks because the investment is done in market-linked funds.

Eligibility Criteria

The eligibility to buy a child plan varies from company to company. The usual entry age to buy a child plan is 18 to 21 years, and the maturity age can be up to 60 to 65 years.

The sum assured also varies according to the plan. While some plans have no minimum criteria, others have criteria of at least 5 to 10 times of the annual premium amount. This means that if the annual premium is Rs 30,000, the sum assured is approximately Rs. 3 lakh.

How Child Plan Functions?

Let us look at the basic working of child plans:

• Child Plans are generally designed to serve two purposes together – of an insurance product and of an investment tool. The product provides financial security to your child at all crucial stages of his/her life
• If you buy the plan, you will be the policyholder, while your child will be the nominee. However, in your absence, the insurance component ensures that your child, being the nominee, receives a substantial amount of money to be able to manage his/her finances seamlessly
• Talking about the investment component, it helps to build a substantial fund to accumulate enough money to meet the necessary expenses in future like travelling abroad for higher education, getting admission and paying fees for a university abroad, marriage or setting up his/her own business.
• With guaranteed financial stability, the parents will be able to concentrate on other aspects of their child’s growth and development.

Claim Process 

Get the child insurance plan from an insurance company that boasts of a high claim settlement ratio. This ensures of a smooth and quick claim processing and settlement in times of crisis. Let’s get acquainted with the claim process.

• In case of an event for which a claim needs to be filed, inform the insurance company about the incident as soon as possible. This can be done by visiting the nearest branch office or calling at their toll-free number or sending an email
• Also submit the claim form and give other details like particulars of the policy, the date and cause of the incident, name of nominee, etc.
• Once the claim is registered, provide other supporting documents and  reports
• The company will appoint an assessor to verify the documents and the case
• If approved, and no further investigation is needed, the claim benefit is transferred with 30 days of furnishing the documents

Documents Required for Claim Process

In order to make claims in case of any eventuality, keep the following documents in place to avoid any rejection. The documents required vary with case to case.

• Duly filled in claim form
• Policy document
• Death certificate
• Medical certificate
• Prescriptions
• Diagnostic reports
• FIR copy (unnatural death)
• Postmortem report(unnatural death)
• KYC of insured and nominee
• NEFT details

Exclusions 

The insurance company does not provide coverage in case of death occurring under certain circumstances. These are called exclusions. Here is the list of exclusions for child plans.

• Suicide or self harm: The nominee does not get any claim amount if the death occurs due to suicide within 1 year of taking the policy
• Participation in adventurous or risky sports: In case the policyholder happens to knowingly participate in these sports, such as racing, rock climbing, skydiving, etc. That leads to death, the insurer does not entertain any claim
• Alcohol or drug abuse: If the insured dies due to alcohol or drug overdose, the nominee does not get any benefit
• Accident due to driving under influence of drug/alcohol: In case the death of the policyholder occurs during an accident while driving under the influence of alcohol or any kind of drug, there is no scope of getting any benefit
• Criminal activities: Any illegal activity or acts of war or criminal activity leading to death rules out any claim benefit

Important Aspects

Always keep these important points in mind so that you understand child plans well and reap the benefits in the long run.

• Start Early: When it comes to child insurance plans, the earlier, the better. It is good to start a child plan as early as possible. This gives the chance to create a larger corpus when the child grows up. The overall benefit of a child plan is visible when the investment period is longer as it gives higher returns. Most child plans offer maturity benefits and give payouts during the crucial stage of children’s life.
• Understand Terms and Conditions: Every child plan comes with its set of terms and conditions. Hence, before choosing the plan, check and compare the plans well to rule out any confusion after taking the plan. Select the plan as per your requirement and suitability.
• Consider Rising Costs: While selecting the policy, consider multiple economic variables to make the most of the child plan. The rising cost of education, inflation and health care expenses are some common economic factors to be kept in mind. Systematic financial planning helps meet the financial goals related to children. This also helps inculcate the habit of saving.
• Partial Withdrawal Clause: Everyone experiences an emergency or a crisis at some point in life. A partial withdrawal clause shields you against contingencies when there is a need for money on an immediate basis. If you have opted for partial withdrawal clause, you can withdraw a part of the money from the sum invested in the child plan to meet the unforeseen expenses.
• Premium Waiver: Child plans come with a rider or additional benefit of a premium waiver, wherein the policy continues even in case of premature death of the policyholder. Such benefit is offered by the insurer where you are paid for the premium cost in case of your sudden demise during the policy tenure along with paying out a death cover as a lump sum amount to the child on maturity. In short, the policy does not lapse even during trying times.
• Choice of Funds: Child insurance plans accumulate premium money from all policies and invest that amount in multiple investment instruments as per the policy.  As parents, you need to be well informed about all the child plans available in the market and offered by your insurance company. Majority of child insurance plans come with systematic transfer plan and dynamic fund allocation options. These will help you to change the amount of investment made by the policy in equity and debt markets.

Advantages of Child Plans

Let us look at some of the advantages of getting child plans.

• Fund for Child’s Education: The primary focus of a child insurance plan is to secure your child’s future. The funds accumulated over a period can be used for your child’s higher education, or can be utilised for important events like marriage. The cost of pursuing higher education is gradually rising and a child plan helps meet these needs. The best child plans also take into account the inflation as they offer benefits on total premium paid over the policy tenure on maturity.
• Liquidity during Medical Emergency: One of the advantages of a child insurance plan is that they offer partial withdrawal. Hence, the amount can be withdrawn in times of medical emergency when the child is hospitalised due to accident, illness or some serious medical condition. In a way, child plans help reduce the financial burden caused due to sudden medical expense.
• Provides Income Protection for Child: This benefit is primarily for those children who start earning at a young age. It protects their income and provides the benefit of capital appreciation over the long-term for a child plan. This is mainly useful for child actors, performers, musicians, etc.
• Collateral for Education Loan: The monthly savings would never be enough to meet the soaring cost of higher education, be it in India or abroad. Thus, arises the need for taking education loan. Child plans can help in securing a loan for higher education as they are allowed to be used as collateral for a loan as well as other child-related borrowings.
• Financial Support in Absence of Parent(s): In case of the sudden demise of one or both parents, it is natural for the child to be shocked and shattered. Insurance companies provide a premium waiver rider if the policyholder passes away during the policy term of the child plan. However, this does not mark an end to the plan, and the policy does not lapse. In such cases, the child is entitled to a lump sum amount promised at the time of purchasing the child policy without paying the balance premium. The rider enables the policy to continue without any breaks or lapse wherein the responsibility of paying the balance premium lies on the insurer.
• Riders or Additional Benefits: The riders can be availed on payment of extra amount. They extend the coverage by giving extra benefits. These riders help in case the parent passes away or becomes permanently disabled in mishap or accident or is suffering from or diagnosed with a critical illness mentioned in the policy. Here are some riders available with child insurance plans:
  • Income Benefit Rider
  • Waiver of Premium Benefit Rider
  • Accidental Permanent Total/Permanent Disability Benefit Rider
  • Critical Illness Benefit Rider
  • Accidental Death Benefit Rider
• Tax Benefits: With child plans you can claim deductions in tax under Section 80C of the Income Tax Act. Also, you can claim tax exemptions under Section 10(10D) on the returns you get. Here, if the premium paid in any year does not exceed one-tenth of the basic sum assured, you can claim tax exemption for interest earned on the investment.

Also Read: SBI Child Education Plans

FAQs

Q1. What should be the minimum age to buy child insurance plan?

For any child insurance plan, there is no such strict entry age to purchase child plan as it differs from insurer to insurer. However, an ideal age to avail a child insurance plan is 18 years.

Q2. What is the mode of premium payment?

Customers are provided with two types of premium payment mode, namely online and offline. In online mode, customers can pay the premium amount through Debit Card, Credit Card, Net Banking and others. On the other hand through offline mode customers are required to pay the premium amount through cash.

Q3. Are there any rider benefits provided under child insurance plan?

Yes, you can avail riders to gain additional benefits and coverage.

Q4. What is the range of minimum premium under child insurance plan?

There is no such restriction over the sum insured amount. However, minimum premium amount starts from Rs. 500 per month. As this premium may vary from insurer to insurer.

Q5. Who decides the frequency of the payouts?

This is decided by the policyholder at the time of buying the plan on the basis of the child’s requirement. The frequency is mentioned in the policy document.

Q6. Can a minor be a nominee for my plan?

Yes, you can, but you need an appointee, who gets the benefits of the insurance on the behalf of the nominee.