Life insurance is not only subjected to adults; it is for everyone whether it is a 16-year-old teenager or a 75-year-old senior citizen. But the question arises how is insurance coverage valuable for your child? Why do children need life insurance? As a parent, you are always concerned about the safety and well-being of your child.
Securing child 's future is the biggest concern of a parent. No parent wants their child's future to be filled with financial troubles. So planning from the very beginning becomes essential for a parent so that his child does not have any financial constraints for his education, marriage, etc.
Children need life insurance too. Life insurance not only provides coverage upon the death of the policyholder, but it also has several other benefits. We can grow the invested amount as the cash component of a life insurance policy. This would help you build a good amount till your child grows up.
What is Life Insurance for Children?
Just like life insurance for an adult, life insurance for a child is also a legal pact where the insurance companies assure to pay a certain amount as coverage upon the child's death. Usually, the parents, grandparents, or some other guardian is the policyholder for the child. The policyholder can also be the beneficiary to receive the coverage amount upon the child's death.
Buying a life insurance for the child is usually done in 2 ways. First, a life insurance plan is specifically purchased for the child. Second, when the parents buy life insurance for them, they add on a child's term life insurance.
Typically, the life insurance for the children is the whole life insurance. Premium rates are constant throughout the tenure. The cash value is also built in parallel to the death benefit that would benefit the child’s future education.
What are the benefits of purchasing a life insurance plan for your children?
A child is not the family's primary earner, but there are still many other benefits of getting children insured. Here is a list of benefits that will help you understand why children need life insurance.
- Security for your child’s future
The cost of expenses related to the child also rises with time. So to secure the child’s future, buying life insurance becomes essential for the parents.
- Growing cash value
A specific portion of the premium goes to build the cash value. The cash value can be withdrawn anytime when required. As the child will up grows the daily expenses related to him will also grow up. Apart from this, there are expenses related to his career, such as educational costs, a specific capital if he starts a business, marriage expenses, etc.
- Financial assistance
Life insurance for children acts as a safety net in case of any unexpected event. It provides coverage for expenses such as funeral costs, medical expenses, etc, giving financial assistance in hard times.
- Low premiums
Buying a whole life insurance policy for your child at an early age gives you the advantage of locking the premiums for a lower amount for the rest of the tenure. In the future, the child may grow up and have health issues that will make it expensive to buy an insurance policy in later years.
- Pre-existing health condition
If the child has any health condition in the future it might get difficult or very expensive for him to have life insurance. So, buying life insurance early gives the advantage of having lower premiums even if the condition worsens in the future.
- It can be transferred when the child grows up
It is not that the child's guardian will always have to pay for premiums. When the child reaches the age of 18 or 21, the policy can be transferred to the child's name.
What are the different types of Insurance plans for your children?
There are various reasons why children need life insurance. For these various reasons, different types of child insurance plans. Here are some of them:-
Child ULIP
Child ULIP gives you the benefit of disciplined investment in the equity market and provides a high coverage amount. The assured sum is given to the child upon the death of his parents. If the parents die before the maturity time, the future premiums are waived.
Traditional Endowment Plans
In traditional endowment plans, the bonuses are given over the assured sum that offers stable returns. Usually, bonuses are provided from the 2nd year onwards.
Single Premium Child Plan
In single-premium child plans, the policyholder has to only a single lump sum installment to the insurance company rather than giving premiums again and again. Some insurance company also provides discounts for the single premium child plan
Regular Premium Child Plan
Unlike the single-premium policy, the regular premium child policy gives you time flexibility. It allows you to make payments monthly, quarterly, half-yearly or yearly.
What are the factors to consider while buying a life insurance plan for your child?
There are many companies providing life insurance in the Indian market. Therefore, it becomes essential for us to analyze your requirements to choose the best life insurance policy in India for your child.
- The Coverage Amount of Child’s Insurance Policy
The coverage amount must be sufficient enough so that it covers all the future needs of your child. It is a thumb rule that the coverage amount must be 10 to 12 times the annual income.
- The Cost of Premium for Children's Life Insurance
It is difficult to adjust the premium cost in the budget, so make sure that the price of the premium is such that you can pay it in the long term. You can use calculators available online for this.
- The Tenure of the Insurance Policy for Children
The tenure of the child's life insurance policy should be such that it provides coverage when required. For example, if you buy an insurance policy to secure your child’s higher education, the insurance policy term should end during the child's college years.
- Claim Settlement Ratio of the Insurance Company
The claim settlement ratio or CSR is the number of claims settled by an insurance company per claim request for that policy. The higher the claim settlement ratio, the better the policy is considered.
- The Surrender value
It is the amount you receive if you cancel the policy. It is important to know what amount will be returned if you discontinue the policy in the future.
What are the Tax Benefits of Buying a Life Insurance for Your Child?
The Indian Government offers many tax benefits for buying an insurance policy for your child. Here are three primary tax benefits to maximize your savings.
- Tax benefits on the premium
Under section 80C of the Income-tax Act, a children's life insurance policy makes you eligible for tax deductions up to 1,50,000 from your taxable income.
- Tax-free maturity
Under section 10(10D) of the Income-tax Act, the amount received as maturity is entirely tax-free. The bonuses and other benefits are also tax-free.
- Tax-free death benefits
Under section 10(10D) of the Income-tax Act, the death benefit that the insurance company pays to the beneficiaries is also tax-free.
To get the best term insurance plan in India, you can go to the company pages of – Max Life Insurance, HDFC Life Insurance, ICICI Prudential, etc.
It is now clear that your children need life insurance to secure their future. However, choosing the best life insurance policy in India for children takes work. Therefore, you should understand your needs, do proper research, and then by the best life insurance plan for children.
