Securing your child’s future

Various needs in an individual's financial planning exercise are fulfilled by Life Insurance plans. Planning for the child’s future is one such need. Children's insurance plans help in fulfilling many of these needs.

Securing a safe future for your child is as important as your own financial planning. For example, suppose an individual wants to plan for his son's education. A child plan will serve in achieving this goal. An illustration will help understand this better:

How child plans work:

Sum assured (Rs) 500,000
Age of parent (Years) 30
Tenure (Years) 22
Annual premium (Rs) 24,000
Maturity amt (@ 6%) (Rs) 319,000
Maturity amt (@ 10%) (Rs) 662,000

Suppose an individual is 30 years old and the child is just 1 year old and the individual want a fixed sum of money (say around Rs 100,000) at regular intervals when his son actually needs the money i.e. while he is still studying.

In this example, the individual may want regular pay outs at the time his son may be nearing graduation. The funds will help supporting the child’s education at the graduation and the post graduation level. In addition, he will also like to buy some life cover for himself in case of an unfortunate calamity so that his son can continue on the career path chosen for him without any struggle.

The plan chosen by the individual is for a sum assured of Rs 500,000 for which the annual premium is Rs 24,000. In case of an eventuality to the individual, his son will stand to receive the sum assured (i.e. Rs 500,000). Bonus will also be received if accumulated over the policy tenure.

A waiver of premium rider along with the basic plan in the child plan is offered in addition to the above pay outs. In the event of an eventuality, the family of the insured will not be burdened with future premium payments on the child plan - the insurance company will make the premium payments towards the plan. This will go a long way in securing the financial future of the child as well as relieving the family from financial worries.

How regular payouts work:

Age of child (Years) Age of child (Yrs)
19 125,000
20 100,000
21 100,000
22 100,000
23 100,000
Once the child crosses the age of 19, regular payments will be received. On the child’s 19th birthday, the son will receive 25 per cent of the sum assured i.e. Rs 125,000 in our example. From thereon, the individual will keep receiving 20 per cent of the sum assured (i.e. Rs 100,000) every year over the next four years.

In addition to this, guaranteed bonus will also be received on maturity. The maturity amount in our illustration is approximately Rs 319,000 (@ 6 per cent assumed growth rate) / 662,000 (@10 per cent assumed growth rate). The maturity amount can help fund the child's post-graduate studies.

Different companies have different child plans and there are different types of child plans too. Various options should be evaluated with care to secure your child's future.