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Children's insurance includes policies through which parents or legal


guardians can provide for life insurance for their child from birth. The risk
cover commences from the child attaining the age of 12 / 17 / 18 / 21
(known as the Date of Risk), and will vest itself on the child upon his or her
attaining majority on completion of age 21, if the case demands so.

Until the child attains majority, the parents are the owners of the policy and
have to pay the premium periodically. It is important that these policies are
considered only after the insurance portfolios of the parents have been
completed. The family¶s insurance budget should primarily buy as much life
insurance as possible on the lives of the breadwinner and should not be
frittered away on the children¶s lives as their insurance is useless in the
event of any premature death of the breadwinner. In fact, those lives should
be insured that have maximum economic emphasis. Quite often, these
policies lapse if and when the premium paying breadwinner of the family die
before the vesting age. After all, the child may not be in a position to
continue paying the premiums.





Children¶s policies are designed to enable a parent or a legal guardian of the


child to provide insurance cover for the child. With such policies, you as a
parent will need to pay the premium for your child¶s policy depending on the
plan and the term till your child attains majority. The risk cover on your child
could start from 7 yrs, 12, 18 or 21 years of age depending on the plan
taken.
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Those, who plan to provide their child with life insurance cover for a future
date when he turns a major, can take children¶s policies. The policy
envisages two stages, one covering the period from the date of
commencement of policy to the deferred date that is the commencement of
the risk. No loans are granted against this policy during the deferment
period and no risk of death is covered until the child attains the prescribed
age as per the policy document.

If the child were to die during the deferment period, the policy will stand
cancelled and a sum of money equal to all the premiums paid without any
deduction becomes payable to the proposer


   

   

All life insurance companies have a few policies designated as children plans.
Objective of these plans is to provide financial security to children in the
form of savings combined with life insurance.

This article is an attempt to understand these policies and their


merits/demerits vis ± a ± vis other form of insurance and investments
available.

Broadly there are two types of children policies available. In one type the
child is the life assured whereas in the other the earning parent or guardian
is the life assured.

In plans like Jeevan Kishore or Komal Jeevan from LIC the child is the life
assured. Unless the parent paying the premium avails premium waiver rider
benefit by paying additional premium insurance benefit available is not
significant. Therefore these policies can be considered as disciplined
investment plans to make money available to the child at predetermined
future dates. Being a conventional insurance plan returns from this type of
plan is not very attractive. In fact it is possible for the investor to select
alternative investment route which will provide higher returns for similar risk
taken to meet this objective.

In the other type of plan available a few specific benefits are included to
make them children specific. In all these plans the parent is the life assured.
(Some companies offer plans where any one can be the life assured and any
one named as beneficiary.)

Death benefit

In the unfortunate event of death of the life assured the child or the
appointee in case the child still remains a minor is paid one full sum assured
and further premium are waived. The insurance company pays the premium
for the remaining period and at the end of the term the child receives
another sum assured with full accrued bonus. In some plans the benefits are
paid in installments at pre-notified times in the policy.

Survival benefit

In the event the life assured survives the term the beneficiary i.e. the child
is paid the maturity benefit as per policy terms.

This plan is available as a conventional endowment type plan or Unit Linked


Plan from most of the companies , the most popular being Jeevan Chaya
from LIC in the former category and Smart Kid and Youngstar from Pru ICICI
and HDFC SL respectively in the later category.

The design of the plan not only ensures that money is available to the child
when required but also provides for funding earlier needs should the bread
winning parent die premature.

These plans are available from different companies with some variations ±
for instance in case of Youngstar the beneficiary need not be a child ± any
one can be nominated as beneficiary. This will be useful to parents who have
more than one child ± they can manage with one policy and make the
mother nominee who can ensure appropriate distribution of the funds as and
when they become available among all her children as per their needs.

While the basic tenets and advantages are explained above an attempt is
also made to analyze weather these are the best methods to save for
children. Attachment to this note compares the type of plans with buying
term insurance and investing the money directly by the parent. From this it
can be seen for the same amount of risk taken and benefit derived buying
term insurance and investing directly is a better proposition than committing
to a children insurance policy of the types available presently.