A Unit Linked Insurance Plan is a type of Life Insurance Plan that includes two components, namely insurance & investment. It offers a part of the premium to be paid towards life insurance & the rest towards investment. One can opt to invest in debt, equity, or both, depending upon the level of risk & your objectives, making it an ideal investment option. It provides a flexible option to switch between the funds anytime during the policy tenure.
Considering the dual benefits of investments & insurance, ULIP can be the Best Policy for a Child. The premium amount paid is diverted towards the funds opted for, & the remaining amount is allocated towards life insurance. This plan also offers an option to switch between the funds & your changing requirements.
Reasons to Invest in Child ULIPs
Provide are the reasons to invest in child ULIPs:
- Rising Educational Costs
This plan helps to cope with the rising educational costs & build a bright future for children, hence relieving the financial stress of the policyholder.
- Dual Benefits under one plan
ULIPs offer the dual benefit of insurance & investment, allowing wealth growth & securing a child’s future.
- Small Investments for Larger Returns
This plan requires a smaller amount to be invested, but the returns provided are quite larger due to the power of compounding, releasing the financial stress of the policyholder.
- Prevents one from falling into debt
Savings on a regular basis can help you avoid falling into debt by availing loans. These plans can also be held as collateral to raise loans for higher education.
- Investment in a Diverse Portfolio
Under this plan, the funds are invested in a diverse portfolio, which helps maximise your capital & build a brighter future for your child.
- Waiver of Premium benefit
In case of sudden demise of the policyholder, the amount of the sum assured will be paid to the nominees, & the premium for the remaining period gets waived off & hence paid by the insurance company.
- Financial Support for Medical Treatment
This plan offers partial withdrawal of funds, offering liquidity during medical emergencies after a lock-in period of 5 years.
- Tax Benefits
- This plan offers a tax deduction on the amount of premium paid, a maximum of up to INR 1.5 lakhs per annum u/s 80C.
- Get a tax exemption on the amount of interest paid on educational loans for up to 8 years.
- If the amount of premium paid per annum under this plan is up to INR 2.5 lakhs, the maturity proceeds thereof will be exempt from tax, except for death benefits.
Features & Benefits of Child ULIPs
Provided are the features & benefits of Child ULIPs:
- Investment in a Diversified Portfolio
Under this plan, the funds are invested in a diversified portfolio which includes equity investments to be done in small-cap, mid-cap, & large-cap stocks. Diversification of funds helps in capital appreciation, leading to a bright future for your child.
- Fund Switching Option
This plan allows switching between the funds in case a particular segment is not providing desirable returns.
- Redirection of Premium & Change in Sum Assured
This plan allows redirection of premiums with the changing needs of your child once a year. Also, this plan entitles you to change the amount of sum assured once the lock-in period of 5 years has been met.
- Partial Withdrawal of Funds
This plan also allows for withdrawal of funds in case of an emergency situation once a period of 5 years has been completed.
- Auto Fund Rebalancing
Once the preference for the investment ratio has been mentioned, the auto fund rebalancing feature takes care of it so that they are not affected by the market fluctuations.
- Safety Switching Option
This option entitles you to move your investments from high to low risk in order to increase the risk most likely in the last 4 years of the policy tenure.
Documents Required
Provided is the list of documents required to be submitted while buying a ULIP plan for a child:
- Address Proof
- Driving License
- Aadhar Card
- Voter ID
- Passport
- Income Proof
- Salary Slips
- Income Tax Returns
- Bank Statements
- Identification Proof
- PAN Card
- Aadhar Card
- Voter ID
- Age Proof
- Aadhar Card
- Voter ID
- Passport
- Driving License
Eligibility Criteria
Provided are the eligibility parameters that should be opted for to buy a Child ULIP:
- The minimum age to buy a ULIP for a child is 1 year.
- The maximum age to enter a ULIP for a child is 60 years.
- The minimum age at the time of maturity can be 18 years.
- The maximum age at the time of maturity can be 70 years.
- The policy tenure can range between 10 & 30 years.
- The premium payment tenure will be the same as the chosen policy tenure, where the parents are required to pay premiums throughout the policy tenure. Here, auto fund rebalancing comes into seen to make sure that the investments are not affected by the market fluctuations.
Steps to Calculate Returns on Child ULIPs
Provided are the steps to calculate returns on child ULIPS:
Step 1: Log in to any available calculator online.
Step 2: Input the amount of premium along with the desirable frequency of payment, i.e. monthly, quarterly, annually, or in a lump sum.
Step 3: Decide the policy tenure.
Step 4: Next, choose the desired funds in which you choose to invest money, i.e. debt, equity, or both.
Step 5: Provide the details, such as age, medical details, gender, etc. & click “Submit”.
Step 6: Once the details are submitted, the ULIP Calculator will assess the amount of returns you will receive over time.
Conclusion
ULIP for child plan offers extensive coverage to parents for securing their children’s financial future. With dual benefits of ULIP, a policyholder will get financial protection, taxation benefits, & wealth accumulation, which will help achieve the educational objectives of children. It is advised to invest as early as you can to take advantage of compounding, & it ensures that your child never has to face financial difficulties to fulfil their dreams.
