While individuals might have a financial plan for themselves in place, it is equally important that they secure the financial future of their children. For example, suppose an individual wants to plan for his son's education. A child plan will serve in achieving this goal. An illustration will help understand this better.
How child plans work
| Sum assured (Rs) | 500,000 |
| Age of parent (Yrs) | 30 |
| Tenure (Yrs) | 22 |
| Annual premium (Rs) | 24,000 |
| Maturity amt (@ 6%) (Rs) | 319,000 |
| Maturity amt (@ 10%) (Rs) | 662,000 |
Suppose an individual is aged 30 years and has a son who is one year old today. He wants to plan for his child's education. He would like to receive a fixed sum of money (say around Rs 100,000) at regular intervals when his son would need it the most i.e. while he is still pursuing his education.
In our example, the individual would like to get regular payouts when his son is nearing graduation (i.e. around 21 years of age). The payouts will help in funding his child's graduation as well as his post-graduate studies. In addition, he will also like to buy some life cover for himself in case of an unfortunate eventuality so that his son can continue on the career path chosen for him without any struggle.
The plan chosen by the individual is for a sum assured of Rs 500,000 for which the annual premium is Rs 24,000. In case of an eventuality to the individual, his son will stand to receive the sum assured (i.e. Rs 500,000). He will also receive any bonus additions that have accrued over the policy tenure.
Click here to calculate your child's education needs
In addition to the payouts above, this child plan also offers a waiver of premium rider alongwith the basic plan. In the event of an eventuality, the family of the insured will not be burdened with future premium payments on the child plan - the insurance company will make the premium payments towards the plan. This will go a long way in securing the financial future of the child as well as relieving the family from financial worries.
How regular payouts work
| Age of child (Yrs) | Amount receivable (Rs) |
| 19 | 125,000 |
| 20 | 100,000 |
| 21 | 100,000 |
| 22 | 100,000 |
| 23 | 100,000 |
The plan chosen by the individual will also help him achieve his goal of regular payouts once his son crosses his 19th birthday. On that day, the son will receive 25 per cent of the sum assured i.e. Rs 125,000 in our example. From thereon, the individual will keep receiving 20 per cent of the sum assured (i.e. Rs 100,000) every year over the next four years.
In addition to this, the individual will also stand to receive guaranteed additions plus bonuses on maturity. The maturity amount in our illustration is approximately Rs 319,000 (@ 6 per cent assumed growth rate) / 662,000 (@10 per cent assumed growth rate). The maturity amount can help fund the child's post-graduate studies.
Child plans differ across insurance companies. For example, if an individual wants to plan for say, his daughter's marriage, then he can opt for a child plan that gives him a lumpsum on maturity as opposed to regular payouts. Child plans can also be taken for building seed capital for his son's future business requirements. Individuals should therefore evaluate their options with care to secure their child's future.
ULIPs & You - Get the latest issue of Money Simplified today! Click here!
