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Thursday, April 14, 2011

Child Insurance Plans

Child Insurance Policies are very popular in India, and life insurance companies aggressively sell these policies in India. In this article, we will try and understand the concepts involved in a child insurance policy.

At its heart, a child insurance plan is essentially a endowment plan with a fixed term . It is more of a marketing story rather than an innovation in a life insurance policy. Insurance being essentially a rather dry, emotionless subject, a child insurance policy helps deliver an emotional connect for the life insurance company with the end consumer.

In a child insurance policy, the parent (s) is the sum insured and the beneficiary is the child. Typically, the child's age would need to be less than 18. The basic objective of the child insurance plan is that in case something happens to the parent, this policy ensures that the child's education, marriage etc does not suffer. In the happy situation that there is no untoward incident happening to the parent, this policy ensures that the parent has saved regularly for the child's better future.

One additional feature that has been built into many child insurance plans is waiver of premium and double sum insured. Double sum insured means that in the case of the parent's death, the sum insured is made payable to the child and another sum insured (or maturity value) is paid at the time of maturity of the policy. Waiver of premium means that after the parents death, no additional premiums need to be paid even though the policy continues and regular additions are made to the fund value by the life insurance company. These benefits (riders) of course come at a price but are extremely helpful to the child in case of the unfortunate death of the parent.

There are traditional child insurance plans (which link everything to sum insured and bonuses) and unit linked child insurance plans (ULIPs, which link everything to fund value). Under the present scenario where charges have been drastically reduced in ULIPs, and also because this is a long term savings instrument, one would recommend a Unit Linked child insurance plan over a traditional product. There are many child insurance plans in the market- Aviva's Young Scholar, Bharti Axa's Future Champs, HDFC Life's Young Star, Max New York Life's Shiksha Plus II etc.

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