The coronavirus pandemic has helped increase awareness about life insurance and its importance. When you have dependent children, protecting their dreams must be your top-most priority.
Choosing an appropriate insurance policy that offers assured returns along with protection will safeguard your children. One major advantage of life insurance for children is that irrespective of their future health, coverage is available to them.
These types of life insurance policies are beneficial for meeting their education and other financial requirements by building wealth over the long term. Some of the available options include:
- Single premium plans
In such a plan, you make a one-time payment of the premium, and the insurance coverage continues until the end of the policy term. When you opt for a single premium plan, the insurer may offer some discounts or other benefits.
- Regular premium policies
When you opt for this type of life insurance policy, you will pay the premium at a pre-determined interval. You may opt for monthly, quarterly, semi-annual, or annual premium payment options.
- Endowment plans
The premium is invested in different debt instruments to earn a return on investments (ROI). These policies are beneficial for capital appreciation and gradually increase the corpus by earning ROI over a long period.
- Unit-linked insurance plans (ULIPs)
These combine insurance coverage and investments. The insurer invests a portion of the premium in different products, which include debt and equity funds. However, these plans are riskier, as financial instruments are subject to market fluctuations and affect the ROI. You have the flexibility to switch among funds after a particular period.
Here are four benefits of life insurance for children:
- Support for your children’s future
As a parent, you would like to provide high-quality education to your children, whether in India or at a foreign institution. However, the school and higher education expenses are constantly increasing, and without proper planning, you may not be able to afford these escalating fees. A child insurance plan ensures your children do not have to give up on their dreams due to any lack of funds. These plans also help you plan for their wedding and other goals.
- Financial stability
When your children are young, it is crucial to shield their economic security in case of an unfortunate event. In your sudden absence, the insurer pays the life insurance benefitsto your nominees, ensuring they have adequate funds to continue their education and meet future monetary aspirations.
- Systematic savings
The best way to build a large corpus in the long-term is regular and disciplined savings. Child plans encourage discipline and the policy duration is often aligned with the various objectives during the children’s future.
- Tax benefits
The premium paid on such insurance plans is eligible for deductions under section 80C of the Income Tax Act, 1961. Additionally, the maturity and other benefits received are tax-free under section 10(10D) of the Act.
Tips to choose the right child plan
- Determine the corpus needed
The fund requirement should be in line with future education expenses after considering any increase due to inflation. Additionally, the benefits must be received at the crucial stages in your children’s lives. It is recommended you use an online calculator to ascertain the financial needs.
- Know the investment period
After calculating the amount needed and the time when it will be required, the next step is to know the period you have during which you can build the necessary corpus. You must also procure life insurance quotes to know the approximate premium you must pay to accumulate the required corpus.
- Assess your risk appetite
Some policies like ULIPs have a risk associated with the investment. Therefore, analyze your risk-taking ability to ensure that you choose the right insurance policy.
It is important to buy life insurance with an adequate sum assured (SA). Doing this will ensure that your children can accomplish their ambitions even if you are there with them. To get life insurance quotes and to know more, you can compare various plans offered by different insurers and make a wise investment decision.