In children policies, the insurance company will waive the future premium in case of death of the proposer. The child will get all the benefits as planned! This is the sales pitch by insurance companies. Is it a better way to plan for children’s future? No.

Child Insurance Plans – Waiver of Future Premium

All insurance schemes are designed with certain basic assumptions regarding mortality, interest rate, bonus etc. Any extra feature is coming at an extra cost.
Let us take the above example. Instead of charging 57,000 as the premium, the company will charge around 60,000 for a child policy of 10 lakhs and the benefits will be like under.

1. The maturity amount of 18 lakhs will be payable in 4 instalments starting from age 18 of the child.
2. In case of death of the proposer 10 lakhs will be paid immediately. The company will waive future premium for the child. All the maturity payouts will continue.

By paying the maturity benefits in 4 instalments, the company is gaining some amount. Now let us see the death benefits. In case of death of the proposer, the company is paying 10 lakhs immediately and it pays the future premium on behalf of the policy holder. This means around 20 lakhs additional liability for the insurance company. The additional premium of 3000 per year is more than enough to offer this provision. The company is collecting premium for a 20 lakhs term policy along with 10 lakhs endowment policy!.

Let us see the maths behind this.

Assuming an inflation rate of 8%, the present value of this 18 Lakhs will be around 4.5 lakhs. Can you afford a decent higher education for your child with 4.5 lakhs now? This shows you have to go for a higher value policy, if you want to go through this route.

Is this sufficient for your child?

Keep away from child policies – It will not help your child for a decent education.