Ask Mint Money | Risk cover in child plans starts only after the child turns seven

I have a three-year-old son. I want to buy a children’s plan for him so that I can invest as well as insure my child using a single product. Which plan should I opt for and what all should I consider before purchasing a child plan?

—Midhun Mohan

Children’s plans usually cover the parents’ lives with the child as the beneficiary. However, the risk cover starts only after the child has attained the age of seven (as currently offered in the plans available). Few things that you may keep in mind before purchasing a child plan:

Quantify your goals and choose a plan for the long term: Insurance companies offer plans with maturity benefits structured to coincide with the child attaining 18 years or “timed” release of payouts at critical life stages from 18 years onwards. These plans offer a long horizon to invest which helps you systematically build a corpus. So quantify your goals with a certified financial planner and choose a plan that encourages such long-term behaviour.

Invest in plans that offer premium waiver benefit: Most child plans offer premium waiver benefit either as an option or as an essential feature in the main plan. What premium waiver does is this: in case of death of the parent, the insurer waives off future premiums to be paid but continues to fund the insurance policy till maturity. This makes sure that the maturity benefit that was set for a certain age remains intact as planned in addition to the sum assured that is paid on death.

Choose a plan which offers a mix of investment options and adequate risk cover: Make sure you invest in a child plan which offers a balanced mix of growth and debt funds and the option of risk cover. Empirically, equities give the best returns in the long run. Make sure that the plan that you choose offers you the right mix of capital protection and growth. Also, choose a plan that has the system transfer option to make sure your gains are protected. Lastly, take adequate risk cover (at least 20 times the annual premium) to ensure that the death benefit is a substantial lump sum.

Read the product brochure and understand the costs of the product: Insurers lay out the charges that a customer needs to pay for the policy in the product brochure. Compare the products available in the market on the basis of charges, the reputation of the insurer, repudiation rates (available on the websites), flexibility offered and their service quality perception.

Amitabh Chaudhry is MD & CEO, HDFC Standard Life Insurance Co. Ltd

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