A Child Plan is insurance cum investment plan that can be customized as per the financial requirements of a child. Therefore, a child plan comprises of two main components- insurance and investment.
The investment component of the child plan is designed so as to provide funds for meeting the financial needs of the child. This fund is accumulated by investing the money in various investment instruments.
The insurance component is added to protect the child from unforeseen event like the demise of his/her parents. In this case, the child gets a fixed annual payment.
Types of Child Plans:
Child Plans are of two types:
- Child Endowment Plans: In a child endowment plan, the amount paid as the premium is invested further in the debt instruments. The choice of choosing the debt instruments where the funds will be invested lies with the company.
- Child ULIPs: Under a child ULIP plan the amount of premium paid by the policyholder is invested both in debt and equity instruments. The majority of the amount is invested in equity instruments. The choice of securities in which the money will be further invested lies with the policyholder in case of a Child ULIP plan.
Benefits of Child Plan:
- It helps in building a corpus for your child’s higher education the cost of which is rising at a fast pace.
- It helps you in setting aside funds for your child’s medical treatment in case such emergency arises.
- Child plan taken at the right time provides funds to the child in case of sudden and unforeseen death of parents.
- It is accepted as a collateral security when applying for loans.