I am planning to take up a child insurance plan for my kid. Is there any rider you would suggest?
Buying a child insurance plan is no child’s play and every parent must do his homework before opting for the most suitable child insurance plan. As a parent the onus of creating financial corpus for your child’s future is on you. As far as riders are concerned, make sure any child insurance plan you chose offers a waiver of premium rider so that there is continuity of future premiums in the event of your unfortunate demise.
In general, Life Insurance policies for children are for securing the child in case of the death of a parent. These plans are available both as Life Insurance plans and Unit Linked Investment Plans (ULIP). The features of these child plans are as follows.
Premiums: Premium can be paid as a lump sum at the beginning of the policy tenure, or you can choose to pay it periodically. Most companies provide premium payment options such as monthly/quarterly/half-yearly/annual. The amount of premium depends on the maturity and sum assured figures that you have chosen.
Sum assured: The sum assured implies the amount that will be paid out in case of the policyholder’s demise. In general, sum assured should be more than 10 times the present gross income of the insured.
Maturity: The maturity amount needs to be chosen carefully. Assuming your child is 8 years old, and his or her policy matures in 10 years, you should take into consideration factors such as inflation and interest rates. If you fail to consider these factors, the funds may fall short of your child’s requirements in future. Also, plans such as single premium plans may not provide maturity benefits, so kindly check the policy documents clearly before applying.
Tenure: These Life Insurance policies are generally meant for children up to the age of 18/21, although you can also find specific plans that have a higher age ceiling. So, tenures can be selected from birth until the child reaches a pre-defined age. The insured should not be more than 70 years of age at the time of policy maturity.
Segmented payouts: With child Life Insurance policies, you can choose whether you want the child to get the payment as a lump sum or in yearly instalments. Such a setting will help in paying dues such as college fees, mortgage amounts etc.
Premium waivers: An intrinsic part of child plans, premium waivers are applicable when the insured dies within the stipulated tenure. In such a scenario, the sum assured will be paid out to the child or ward, while the premium for the remaining tenure will be paid by the insurer. At the end of the tenure, maturity amounts will be provided as detailed in the policy document. In case premium waiver is not provided automatically, you should opt for a waiver rider.
Riders: Specific riders are available that give you more out of your Life Insurance policy. The riders are available in three basic categories – premium waiver, critical illness, and accidental death and disability. The premium waiver may already be part of your plan, so please check the policy documents in this regard. The critical illness rider provides coverage for critical illness, while accidental death and disability riders are applicable in case of unfortunate accidents that cause disability or death of the insured.
The payouts at maturity of ULIPs is determined by the markets, since the funds in ULIPs will be invested in equity instruments. This plan is good for longer tenures (more than 10 years). Companies may provide the option of choosing between different investments funds, allowing you more control over the money you have invested. Some dynamic plans are also available where the interest and funds may be transferred directly and automatically from equity to debt instruments.
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