Why Is Life Insurance Coverage Valuable for Your Child?

Benefits of Purchasing Life Insurance Coverage for Your Child

As a parent, you always want to ensure the safety and well-being of your children. While no one likes to think about the possibility of their child passing away, it is important to be prepared for the unexpected. One way to provide additional protection is by purchasing life insurance coverage.

Here are some of the key advantages of buying life insurance coverage for your child:

1. Securing your child’s future

   The most fundamental reason why parents need life insurance is as basic as securing their child’s future. Given the rising costs related to childcare at the onset and gradually moving on to other expenses as they age only signals that your expenses will grow.

2. Cash value

   Many life insurance policies for children come with a cash value that grows over time. This cash value can be used as a savings tool for your child's future, such as for education expenses, a down payment on a house, or starting a business.

3. Financial protection

   Life insurance provides a financial safety net for your child, ensuring their protection in the event of an unexpected tragedy. It can provide funds to cover funeral expenses, medical bills, and other financial obligations, easing the financial burden on your family during a difficult time.

4. Coverage for pre-existing health conditions

   If your child has a pre-existing health condition, it may be difficult for them to obtain life insurance coverage later in life. Purchasing a policy for them when they are young and healthy can ensure that they have ample coverage for future in case health condition worsens.

5. Locks in Low Premiums

   Purchasing life insurance coverage for your child at a young age allows you to lock in lower premium rates. As your child grows older, they may develop health conditions that could make it difficult or expensive to obtain life insurance coverage in later years.

6. Transferrable

   Many life insurance policies for children can be transferred to the child when they reach a certain age, such as 18 or 21. This can provide your child with a valuable asset that they can use to protect their own family in the future.

Different Types of Life Insurance Plans for Children

Every parent tries to make sure that their children do not suffer financially no matter how young or old they are. One way for parents to achieve this is by investing in a life insurance plan.

Let us understand different types of Child Insurance Plans that parents can explore and buy.

Types of Child Insurance Plans

1. Child ULIP

   Child ULIP comes with 3 pronged advantages broadly. They are as follows:

   • High insurance coverage

   • Disciplined investments

   • Participation inequity market

   It includes:

   • Nominee child receives sum assured upon parent/legal guardian's death

   • Future premiums waived after parent's demise

   • Maturity value paid at maturity

   • Child ULIP guarantees child's future dreams, regardless of parent's presence

2. Unit Linked Insurance Plans

   • ULIP payouts at maturity are based on market performance

   • Best suited for long tenures (10-15 years)

   • Different investment funds available with potential for higher returns

   • Some plans transfer profits from equity to debt instruments

3. Traditional Endowment Plans

   These are simple plans providing stable returns in the form of bonuses over the sum assured. Generally, under Traditional Endowment Plans, bonuses are paid from the 2nd year onwards.

4. Single-Premium Child Plan

   • Policyholders pay a single lump sum amount for the entire policy term.

   • No need to remember due dates for premium payments.

   • No hassle of arranging finances for premium payments.

   • Some insurance providers offer discounts or reduced premiums for child plans.

5. Regular Premium Child Plan

   Unlike a single premium child education plan, a regular premium child policy offers you flexibility in premium payment. You can pay the premium monthly, quarterly, half-yearly, or yearly.

Child Savings Plan vs Sukanya Samriddhi Yojana Scheme and Public Provident Fund

Best Child Insurance Plans in India 2025^≈

Disclaimer: ≈ Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is done in alphabetical order (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Factors to Consider When Purchasing Life Insurance Coverage

In India, multiple options of child plans are available which makes it difficult to choose. Hence, it is crucial to consider a few factors affecting policy coverage. 

Let us look at some key factors to consider when purchasing life insurance coverage for your child: 

1. Coverage amount

   The coverage amount is the sum assured that the insurance company will pay out in case of your child's death. It is important to choose a sufficient amount that covers your child's future financial needs, such as education or marriage expenses. A good rule of thumb is to choose a coverage amount which is at least 10-12 times your annual income.

2. Premium amount

   The premium amount is the amount you pay regularly to keep the policy active. It's important to choose a premium amount that you can afford to pay over the long term. You can use online calculators or talk to an insurance agent to get an idea of how much the premium will be for different coverage amounts.

3. Policy term

   Policy tenure should be such that it covers your child's future needs. For example, if you want to ensure that your child's education expenses are covered, you should choose a policy term that ends during or after their college years. Typically, child plans are considered for at least 15 years to get ample coverage. 

4. Riders

   Riders are additional benefits that can be added to the policy at an extra cost. Some common riders include accidental death and disability rider, critical illness rider, and waiver of premium riders. Consider adding riders to your child's policy that can provide additional protection in case of unforeseen events. 

5. Claim settlement ratio

   The claim settlement ratio is the percentage of claims settled by an insurance company in a given year. It's important to choose an insurance company with a high claim settlement ratio, as this indicates that they are more likely to honor your claim in case of your child's death.

6. Surrender value

   The surrender value is the amount you receive if you decide to cancel the policy before the end of the policy term. It is important to choose a policy with a high surrender value as it ensures that you receive back the premiums paid if you choose to cancel the policy.

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Tax Benefits

Life insurance policies for children in India offer several tax benefits that can help you save to maximize your savings. Here are some of the key tax benefits of investing in life insurance:

1. Tax deduction on premium payments

   The premium you pay towards your child's life insurance policy is eligible for tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per year. This means that you can claim a deduction of up to Rs. 1.5 lakh from your taxable income, thereby reducing your tax liability.

2. Tax-free maturity proceeds

   In addition to the tax deduction on premium payments, the maturity proceeds of a life insurance policy for children are also tax-free under Section 10(10D) of the Income Tax Act. This means that the amount you receive on maturity, including bonuses and other benefits, is completely tax-free.

3. Tax-free death benefits

   If your child passes away during the policy term, the death benefit paid by the insurance company to the nominee is also tax-free under Section 10(10D) of the Income Tax Act.

Wrapping It Up

Life Insurance coverage for your child provides a safety net in case of unfortunate events like a parent’s demise or critical illness. By choosing a policy with the right coverage, you can ensure your child's financial security and peace of mind.