Unit Linked Child Plan and Benefits

Whatever you do for your child can never be enough. Every parent tries to put in more than 100% effort to safeguard their child?s future, at least when it comes to financial security. A unit-linked child plan is a step in that direction only, where not only the child gets death benefits, but also a return on investment. This, in short, doubles up the benefits a child can avail of in the unfortunate scenario of losing his parent/s.
What Is A Unit Linked Child Plan?
It is quite similar to a regular unit linked insurance policy (ULIP) where part of the premium is used to cover death risks and other policy charges like mortality charges, administrative charges, fund management charges, etc. and the remaining is invested in various financial instruments like debt, equity, securities, money markets etc. for adequate returns after a period of time.
Benefits Of UNIT LINKED Child Plans
These plans offer a host of benefits to the insured to maximize their gains. Here are the best ones:
1) Wide Range of Funds to Invest
Unit linked child plans offer a wide range of funds to invest. Ranging from equity to debt or debt to a balanced fund. The policyholder who is a parent in a child plan can take the investment decision according to the risk bearing appetite. High risk funds like equity offer higher returns and are subject to market risk where as investment in debt related fund offer stable returns. The policyholder may switch the fund as well as per the market conditions.
2) Death Benefits
This is where UNIT LINKED CHILD PLANs differ from regular ULIPs. Under UNIT LINKED CHILD PLAN, at the time of death of the insured, the nominee will receive sum assured as death benefit, but the policy will not expire. It will continue and will pay out the fund value to the nominee at the time of maturity of the policy. For example, Mr. Majumdar has a policy with a sum assured of Rs. 30lakhs for a term of 15 years. If he passes away after 7 years of the commencement of the policy, his child (nominee) will receive Rs. 30lakhs at the time of death and the fund value at the time of the maturity of the policy. This way fund are utilised in the right manner and they keep growing even after the death of the insured. These benefits are a variant of type 2 of the ULIPs where the nominee gets both the sum assured and fund value at the time of death of the insured.
3) Maturity Benefits
Since UNIT LINKED CHILD PLANs are market linked plans and the policy continues even after the death of the insured, the returns are higher on investment compared to other regular term plans or child plans. For example, the insured was supposed to pay premiums of Rs. 70,000/- per annum for 15 years for a sum assured of Rs. 30lakhs. But if he dies within 5 years, he would have paid Rs. 3.5 lakhs as premium, but his nominee will receive Rs. 30lakhs as death benefit. Along with that future premiums will be paid off. And after completion of 15 years, he would receive a maturity amount based on investments made by the insurer for 10 years out of 15. Even after discounting higher mortality charges, fund management charges, etc., the returns are substantial. Also, these plans provide an option for the nominee to avail maturity benefits as one time benefits or in instalments over a period of time.
4) Switching Funds
UNIT LINKED CHILD PLANs offer the insured 4 options per year to switch between various funds to maximize the return on their investment at no extra charges. Any more switches would attract a minor charge of approximately Rs. 100 per switch.
5) Waiver Of Future Premiums
UNIT LINKED CHILD PLANs provide this benefit where after the death of the insured, the future premiums on the policy are waived off. The insurer keeps investing the premium in various funds on behalf of the insured and at the time of the policy maturity, the nominee is paid the fund value after adjusting the necessary charges.
6) Surrendering Policy
You can surrender the policy anytime, but can avail the benefits after a specified period of time. It varies between 3-5 years, depending on the plan and the insurer. It also depends on the number of years you have paid premium for. In case you want to do partial withdrawals, it is possible, but only after successful completion of 3 years of the policy subject to various conditions as mentioned in the policy.
UNIT LINKED CHILD PLAN is an important financial tool to help you manage your child?s future financial needs. It is better to invest time in studying various features of different plans available before deciding to buy one. An insurance product with investment aspect tied to it can lead to major gains for your child. Decide carefully!