Can Grandfather Gift an Insurance Policy to a Grandchild in India?

Buying Insurance for Grandchildren in India

Any grandparent with an insurable interest can gift an insurance policy to their grandchild. This can be done at any point after the birth of the child with prior consent from the parents. They can either purchase a child plan offering education benefits or name their grandchild as dependents in their life insurance policies. As the policyholder, the grandparent will be in charge of premium payments. In the case of the grandkid's death, the grandchild will be entitled to the cash benefit applicable under the child's life insurance cover. 

However, since children are dependents and do not have an income source, insuring their lives make little sense. Given that life insurance is meant to serve as income replacement, you may want to consider a policy that offers direct benefits to them, such as child education plans. These plans allow you to save for your grandchild’s education, ensuring that they can pursue any field without struggling for expenses. 

Things to Know Before Buying Insurance For A Grandchild in India

1. Demonstrate Insurable Interest

   If you are a grandfather buying insurance for your grandkid, you will be asked to show insurable interest by your insurance provider. Insurable interest means that you should have a justifiable cause for insuring a minor. One such reason could be that you are the sole guardian of your grandchild and currently raising him/her. You can also show cause for emotional and financial distress on the death of your grandchild to qualify for an insurance policy. Another justifiable reason would be to use insurance to help finance a child’s education. 

2. Eligibility Criteria

   The eligibility criteria vary from insurer to insurer as per the type of plan chosen. Child plans can be mostly be bought for those in the age bracket of 0 to 17 years, which is the standard entry age. Children can remain under insurance protection till the age that they become financially independent to become the owner of the policy and take over the premium payments.  

   The policy tenure depends on the purpose of buying insurance. If it is solely for risk management, a grandfather can insure their child with a whole life policy, with the child taking ownership at a certain age. If, however, it is for savings and education funding, the maximum policy term depends on the entry age of the grandchild. 

3. Type of Policy 

   There are different types of policies that grandparents can invest in for their grandchild, including whole life plans, ULIPs, endowments policies, etc. The one with the most benefits is ULIPs. Such plans offer scope for wealth creation through investments in equities, savings for a child's education, along insurance protection. However, as the proposer of the policy, you should discuss with the parents first to establish an objective. 

   As grandparents, child education plans that offer periodic benefits to finance higher education, college fees, and abroad education could prove to be beneficial for the child. Alternatively, you might also consider adding your grandchild as a nominee of your life insurance policy. That way, you can rest assured that the benefit amount on your death reaches the grandchild for them to fund their needs.

4. Affordability and Sum Assured 

   If you are wondering how much to insure for your grandchild, you should first establish the goal of your purchase. Remember, insurance alone for a child may not suffice to cover his/her education or other financial needs. You should also factor in the affordability of the policy. Depending on the sum assured, plan type, and the medical history of the child, premiums are charged. Make use of online premium calculators to estimate premiums against these factors to shortlist plans that are economically feasible in the long run. 

5. Medical Underwriting

   Children fall in the low-risk category. Therefore, buying insurance for them usually does not require any medical check-ups. However, if you are buying insurance for a child born with medical conditions, you will have to disclose all facts about the condition. Further, when the child takes ownership of the policy, he may need to undergo medical tests. 

Why Should A Grandfather Buy Insurance For His Grandchild?

Child insurance as a gift for your grandchild can be very rewarding in the long term. Considering that a person's insurability diminishes with age, a child plan for your grandkid could ensure long-term security. In addition, savings and ULIP based child plans tend to accumulate significant cash value towards maturity along with the assured death and maturity benefits. These benefit amounts can fund a child's education from school through university. These can also be used towards fulfilling any debt obligations. Further, if you want your grandchild to kick start their ventures and thrive professionally, proceeds from insurance policies can act as great incentives. Here are some of the reasons for buying insurance for a grandchild:

• If your grandchild is nominated under your whole life insurance policy, the benefits that they receive on your death are exempt from tax deductions. 

• In addition to the sum assured on death and maturity of the policy, child ULIPs earn high returns from market-linked instruments, thereby maximizing the benefit amount. 

• Buying insurance, when a child is healthy, guarantees their future insurability even if they develop a medical condition that prevents a person from qualifying for life insurance. 

• Premiums for child plans are low because they do not pose any immediate health risks that can lead to death. As such, insurers charge lower premiums. 

• The death benefit proceeds on the death of an insured child can cover burial and funeral expenses and any other medical costs that the family had to incur.

The only downside of gifting an insurance policy to your grandchild could be that children are merely dependents with no source of income. As such, insuring their lives by paying regular premiums may seem futile to some. It would make more sense for the premiums to be invested in other financial instruments that generate higher returns. 

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Summing Up!

Grandparents, given their years of experience, understand the importance of financial security. The fact that grandparents are extended caregivers, they have the right reasons to insure their grandchild and secure their futures financially. While conventional gifts lose value over time, insurance as a gift for your grandchildren can benefit them at every stage of life owing to the accumulating cash value. The proceeds from child insurance plans can offer the required financial head start to their grandchild towards their professional and personal goals. The insurance landscape in India now allows grandparents to ensure comprehensive financial stability for their grandkids with or without the consent of the parents.