Buying a child insurance plan? Read this

Photographs: Rediff Archives

A review of leading insurance plans for children launched in 2009 and which you could consider as investments for their prosperous future.

Let us first talk about a few basic questions that come to every parent's mind when they think of buying a child insurance plan. Once we answer these it will help you in deciding which child insurance plan best suits your children.

Why take a children's insurance plan?

Simply because children's plans help you save so that you can fulfil your child's future dreams and aspirations.

These plans go a long way in securing your child's future by providing the required protection and financing the key milestones in their lives, even if you are not around to oversee them. Children's plans are specifically designed such that you will be able to provide the required economic support to your child when it is most needed.

Who should take a children's plan?

All parents who have the capacity to afford such a plan should invest. It is imperative that the plan be taken by the earning parent/parents so that the financial security is provided to the child. In case of an eventuality to the insured parent, the proceeds from the claim can be managed by an appointee (spouse) till the child becomes a major.

Which plan to choose?

You should choose a plan that satisfies your need. Each plan has specific feature/features that make it unique. Although charges are important criteria to choose between unit linked plans, the features and flexibilities offered by the plans are also equally significant while choosing a children's plan. With careful selection, you can get the product that is customized to your needs.

Click NEXT to read the review of HDFC Standard Life Insurance Company's Young Star Super, ICICI Prudential's Smart Kid New Unit Linked RP, Kotak's Headstart Future Protect and Birla Sunlife's Children's Dream Plan.

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HDFC SLIC Young Star Super

Death benefit

You have a choice of double benefit and triple benefit. Sum assured is paid out immediately.

Double benefit: All future premiums towards the policy are paid by the company and the fund value is paid to the beneficiary on maturity.

Triple benefit: 50 per cent of the premium is paid to the beneficiary and the remaining 50 per cent goes towards the policy and the fund value if paid out on maturity.

Maturity benefit: Fund value which can be taken immediately or in tranches through the five-year settlement period.

Beneficiary: In most child insurance plans, it is mandatory for the child to be the beneficiary/nominee. However, this plan has no age restrictions on whom to nominate and hence it can be taken for an older child as well.

Additional perks: Bumper additions are available if the policy is in force and no withdrawals have been made during the policy tenure. If the term is 10 years, 50 per cent of the original annualised premium is paid along with the fund value and if the term is more than 11 years, 100 per cent is added to the fund value and paid out.

Flexibilities: Top-ups are allowed when the policy is in force; 24 switches are free in a policy year; increase and decrease of premiums are allowed on policy anniversaries; 12 premium redirection requests are free in a policy year.

Ideal for: Earning parent/parents with children of any age. With no age restrictions on nominee/ beneficiary and the additional flexibilities mentioned above, it is an ideal plan for any parent wishing to secure his/her child's future.

What to avoid: Partial withdrawals affect bumper additions so if you're looking for a plan that can provide funds in tranches, let's say to pay tuition fees through college, you might want to shop around for a plan that offers that additional flexibility.

ICICI Prudential Smart Kid New Unit Linked RP

Death benefit

Sum assured is paid out immediately; future premiums are waived and the fund value is paid out on maturity.

Maturity benefit: Fund value which can be taken immediately or in tranches through the 5 year settlement period.

Nominee: The child has to be the nominee. There is an age restriction on the nomination which is between 0 and 15 years.

Additional perks: Automatic transfer facility is available from money market fund to any of the equity funds for those who do not have the time to manage the funds themselves.

Maximum age at maturity for child: An additional age restriction of between 19 to 25 years is imposed on the nominee of the plan.

Flexibilities: Four free switches in a policy year; Income benefit rider which pays 10 per cent of the sum assured every year to the beneficiary on death of the life assured is available at an additional cost; Top-ups are allowed when the policy is in-force; Increase and decrease of sum assured is allowed (at company's discretion) anytime during the policy tenure.

Ideal for: Earning parent/parents who have young children and wish to save for their education/marriage. If you wish to choose a higher sum assured in the initial years and bring it down as you accumulate assets, the option to decrease the risk cover is available. With the Income benefit rider, the child can receive an annual allowance every year till maturity, which provides additional protection for your child's future.

What to avoid: With the age restriction for the child on maturity, any parent with a child older than 12 or 13 can avoid. Also, only five partial withdrawals are allowed during the entire policy tenure, a negative again for those who are planning on meeting expenses for multiple years.

Kotak Headstart Future Protect

Death benefit

You can choose between insuring single life and joint life and adding two nominees in the place of one. Sum assured is paid out immediately.

Single life: Unlike other plans discussed here, the fund value along with all premiums outstanding will also be paid out immediately or in tranches through the settlement option and the policy terminates.

Joint life: On prior death of the primary life assured, all premiums outstanding is invested as bulk into the allocated funds and the fund will continue to be managed and is paid out on maturity. On death of the latter of both lives assured, sum assured is paid immediately and the fund value is paid either immediately or in tranches through the five year settlement option.

Maturity benefit: Fund value which can be taken immediately or in tranches through the five year settlement period

Nominee: The child has to be the nominee. There is an age restriction on the nomination which is a maximum of 17 years.

Additional perks: Can nominate 2 children under one plan; Survival units are added at the end of 10, 15 and 20 years; Partial withdrawals are allowed after 3 policy years and without penalty after 6 policy years; 4 free switches in a policy year.

Ideal for: Joint life is a good option where both parents are earning and supporting the children. Sum assured becomes payable on death of the latter of both lives which provides adequate protection for their future.

What to avoid: Earning parent/parents with young children. One of the main benefits of a children's plan is that the money comes to the child at the time he/she needs it the most. In this plan, however, the payout is immediate and therefore, the plan is ideal for those whose children are grown up enough to manage the funds themselves if the need arises.

Birla Sunlife Children's Dream Plan

In this plan, you choose the maturity value you wish to receive and the sum assured and premium is quoted by the company based on this. This maturity value is guaranteed by the product on maturity.

Death benefit: Sum assured is paid, future premiums are waived and the fund value is paid on maturity.

Maturity benefit: Higher of the fund value or guaranteed fund value is paid. You have the option of receiving the maturity benefits either as a lump sum or in tranches over 5 years by choosing between 100 per cent, 200 per cent or 300 per cent maturity options. While the multiples are on the guaranteed maturity value, the payout happens compulsorily over 5 years for the 200 and 300 per cent options.

Guarantee: It is important to note that the guarantee is available on the product only as long as all premiums are paid on or before the due date.

Nominee/ beneficiary: The child has to be the nominee as the age restriction on nomination is between 30 days to 13 years. There is also a restriction on the age of the child at maturity which cannot exceed 18 years.

Additional protection: You have the option of adding enhanced risk cover to the basic plan in the beginning or any time during the tenure of the plan. The additional risk cover here comes at a very minimal cost.

Flexibilities: Two fund switches, two partial withdrawals and two premium redirection requests are free in a policy year; Enhanced sum assured can be opted for anytime during the tenure of the plan; Top-ups are allowed when the policy is in-force.

Ideal for: Earning parent/ parents with toddlers; the earlier you take the plan, the longer the term you get to choose. With the flexibility of enhancing the risk cover at minimal cost and relatively lower initial charges, the plan is a good option even for those who cannot afford to have high premium commitments. However, premium payment on time is imperative or you lose the guaranteed benefit.

Avoid: While taking a long term unit linked children's plan, it is advisable to park your funds in equity in the initial years to maximize on growth opportunities. This product, however, offers only a maximum of 35 per cent equity exposure which can be crippling for those who are in it for the long term.

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