Child parenting not only involves love, affection, and care, but also financial planning to secure the child’s financial future. A Child Plan offers dual benefits of savings along with protection, allowing parents to build corpus funds while providing financial security to the child in case of parents’ unexpected demise.
What is a Money-Back Plan?
A Money Back Plan is a type of life insurance plan that offers the dual advantage of life coverage and periodic benefits. This plan includes receipt of survival benefits at pre-determined intervals, and thereafter maturity benefits at the end of policy tenure. And, in case the policyholder dies any time during the policy tenure, their nominees will receive the death benefits.
A child money back plan allows parents to save for their child’s financial future by providing them financial protection. Also, it offers regular payouts at certain pre-determined intervals to meet the child’s education, marriage, or any other important expenditures.
How does a Child Money Back Policy Work?
A Money Back Plan for a child offers life insurance protection along with periodic payouts throughout the policy tenure. The following are the steps that should be kept in mind.
Step 1: Choose an appropriate plan:
An appropriate plan should be considered depending on certain factors, such as the child’s age, financial objectives, premium amount, policy tenure, payout needs, etc.
Step 2: Make payment towards the premium:
Parents make payment towards the plan bought according to the premium payment schedule and frequency agreed upon, which can be monthly, quarterly, half-yearly, or yearly.
Step3: Receive periodic benefits:
The parents will get survival benefits at pre-defined intervals throughout the policy tenure, subject to terms and conditions. The amount received can be used to meet the financial milestones of your children.
Step 4: Get the maturity benefits:
In case the policyholder survives the plan, they will receive the maturity benefit according to the pre-determined terms and conditions. This includes the remaining benefit amount to be paid along with the applicable bonus amount at maturity.
Step 5: Death Benefit in the event of the policyholder’s demise.
In case the policyholder dies at any time during the policy tenure, their nominees will receive the death benefit. This amount is separate from survival benefits, providing financial assistance to meet the child’s future financial needs.
How Can Parents Plan a Money Back Policy for their Child’s Future?
Parents should consider a practical approach while choosing a money-back policy for their children. They should identify their financial objectives, weigh the plan’s pros and cons, and choose a payout schedule that best suits the plan and aligns well with the future financial requirements.
- Consider the Child’s Age along with future milestones.
Consider your child’s age to determine the expected future expenses depending on their future milestones. These milestones may include the child’s higher education, any specialised or professional course, or any other expenses.
- Align the payouts with your child’s financial objectives.
Parents should consider the timing of the expected payouts while selecting a money back policy for their child. This means the payouts should be scheduled in such a manner to meet the future milestones of their children.
- Ascertain the appropriate premium amount to be paid.
Parents should consider the premium amount, keeping in mind their income, existing expenses, any other investment plans in hand, etc., to decide the premium allocation towards the plan.
- Consider additional benefits
Parents should also consider additional benefits such as life coverage, maturity benefits, or any other benefits besides periodic payouts. This may be done to gain an understanding of benefits, i.e. whether they are guaranteed or depend on certain factors.
- Evaluate the insurer and policy terms and conditions.
Parents should also evaluate the insurer’s claim settlement ratio, reputation, and financial strength. Also, they should check the policy document to assess the premium payment terms, surrender terms, exclusions, etc., while making a decision.
Why is a Money Back Plan relevant for Parents?
Parents should consider the below-mentioned advantages while buying a money back plan:
- Guaranteed and Non-Guaranteed Benefits
As this plan offers guaranteed and non-guaranteed benefits both, parents should check for the same. This means they should check which benefits are guaranteed or whether any benefits are dependent on certain performance-related factors.
- Taxation Benefits
It offers a tax deduction u/s 80C of the Income Tax Act, 1961, of up to INR 1.5 lakhs along with an exemption on the maturity proceeds, subject to applicable terms and conditions.
- Regular Payouts
This plan offers regular payouts, letting parents fulfil their child’s future objectives, like education, business startups, marriage, etc.
- Life Insurance Coverage
In case of the unfortunate demise of the policyholder, this plan offers a death benefit to their nominees, hence providing financial security.
FAQs
- Can the payouts received from a child money back plan be used to meet educational expenses?
Yes, parents can utilise the payout amount to meet any financial needs, including educational expenses. They should plan to buy such a policy in accordance with their child’s milestones to ensure the availability of funds at the right time.
- What factors should parents consider before buying a money back plan?
Parents should consider factors such as financial objectives, investment horizon, premium amount, life coverage, payout schedule, future financial obligations, inflation factor, and terms and conditions.
- Can a money-back plan for a child be surrendered before maturity?
Some of the money-back plans may allow to surrender before maturity, subject to certain terms and conditions. However, it may have an effect on the benefits amount; hence, the terms must be kept in mind before opting for surrender.
Conclusion
A child’s future planning involves long-term commitment, comparing available options, understanding the payout terms, and reviewing the policy document carefully while selecting a plan. A child money back plan offers the dual advantage of insurance and saving benefits, not being linked to the market; hence, it may not offer aggressive returns and best suits the risk-averse investors. Parents should assess the benefits and limitations to make informed decisions depending on the future needs of their children.