A life insurance term plan is one of the basics that everyone should have in their portfolios. It is regarded as the purest form of life coverage and is highly recommended for investors. At the same time, there are multiple child plans which are often suitable for parents who wish to safeguard their children’s financial futures. The big question is, which one is right for you? Should you choose a child plan or a term insurance plan? Here is a closer look at the differences between these plans in this article.
What is Term Insurance?
There are various kinds of term insurance plans. The basic or conventional plan is where there are no maturity benefits if the insured person outlives the policy. However, in case they pass away within the policy period, then the insurance company pays a fixed sum assured to the nominees of the policyholder.
This amount helps them take care of monthly living costs, future goals, and debt repayments. There is another variety, namely a term plan with a return of premium. This is where the premiums paid are returned to the policyholder as a maturity benefit if they outlive the policy tenure. GST and other applicable charges are deducted from the premiums that the policyholder paid. The other regulations concerning the sum assured payout are the same. Term insurance ensures comparatively higher coverage at lower premium rates.
What is Child Insurance?
Child insurance combines life insurance and investments. Over time, these policies contribute towards the well-being of your child in the future. There are several types of child plans available where the parents become the policyholders while the child is the beneficiary. The investment component of the policy, based on the earnings of the same, enables easy payments for the college education of children or weddings. The life insurance portion ensures coverage for the child’s financial future in case of the parents’ untimely demise.
The child gets the death benefit in case of the demise of the policyholders. The payouts are pre-fixed and often disbursed at intervals to pay for specific costs. Child plans may also come with premium waiver features, which may either be integrated into the policy or availed in the form of a rider. In this case, the premiums do not have to be paid in case of the disability/demise of the parents/policyholders. Instead, the insurance company waives the remaining premiums while the policy stays active. The premiums of these plans are comparatively higher than term insurance policies.
What are the main differences between Term Insurance and Child Plans?
Here are the key differences between these two plans:
- Type Of Plan- Term insurance is pure life coverage, while child plans combine life insurance with investments
- Premium Amounts- The premium in a child plan is dependent upon the chosen coverage and other features. The premiums are higher due to the investment component and other benefits. In a term insurance plan, there is no maturity benefit and hence policyholders can obtain higher life coverage at comparatively lower premium rates.
- Payout Options- Term insurance plans only pay the sum assured to the nominee of a policyholder in case of the latter’s demise within the policy tenure. Child insurance plans to offer money to the beneficiary/child at specific intervals or life stages. At the same time, the demise of the policyholders or parents leads to the payout of the sum assured accordingly.
- Tax Advantages- Both insurance policies have eligibility for Section 80C tax deductions up to Rs. 1.5 lakh on premium payments. You can also get critical illness coverage or other health-related riders in your term plan for additional tax benefits under Section 80D. This additional deduction is available for those buying term insurance plans in the country.
Another point worth noting is the fact that the nominee in a term insurance policy can be anyone in the family who is a dependent, i.e. a spouse, child, or even parents. However, the nominee in a child plan can only be the child of the policyholders or parents. You should thus examine the key features of both term insurance and child plans before finalizing your decision.
If you wish to obtain life coverage for your child and also save money for their future goals, then a child plan could be the best choice. Conversely, securing the family financially with sizeable coverage in case of your unfortunate demise is only possible with term insurance. Therefore, you should choose your life stage and specific future objectives. At the same time, you may also consider opting for both term insurance and child plans. Both these policies offer their own set of benefits for policyholders and their beneficiaries.
