What is a Child Endowment Policy -Children Education Plans?

The future is uncertain and no one knows how it will unfold. It is best to be prepared. One remembers the famous saying by Mahatma Gandhi "The future depends on what you do today". The bundle of joy instills in one a sense of responsibility. High prices define the present. Children’s education, hospitalization, marriage is so expensive that one does not know where the funds will come from. God forbid if something were to happen to the breadwinner of one’s family how would the spouse manage the additional financial responsibility as well as bring up the child .Surely a child endowment plan is a must have in ones insurance portfolio.

What is a child endowment policy?

A child endowment policy is a traditional life insurance plan which offers protection as well as savings or an investment benefit. A participating child endowment plan is also called a “with profits plan.” In a participating plan one can choose a sum assured against which a premium is paid. This sum assured is a guaranteed payment on the death of the parent or when the child attains maturity .In addition to the guaranteed amounts one can obtain periodic bonuses. All premiums are pooled together and bulk of the corpus is invested in fixed income securities. About 90% of the profits realized are distributed as bonuses to the policy holders. About 10% of the amounts might be retained by the life insurance Company. These are also called non guaranteed returns. The bonus amounts might be paid on an annual basis or at periodic time intervals. An additional bonus known as a terminal bonus might be paid in the final year of the policy. In these polices returns are evened out and paid as bonuses .In periods of good returns any surplus amounts may be retained and the remaining amounts paid out as bonuses .These retained amounts might be paid out as bonuses when the policy is not doing too well. This smoothens returns over the life of the policy .Certain polices pay a one off performance bonus on the surrender of the policy or at the time of a claim.

Children Education Insurance Plan:

How does a child endowment plan work?

One knows that a child endowment plan may have a premium paying term of 10-15 years. The policy matures when the child is 18-24 years of age. If the policy matures when the child is 18 years of age 20% of the sum assured is paid out at that age with the remaining sum assured amounts paid over gradually till the child attains the age of 22 years. Bonus amounts in case of a participating plan might accrue from the sixth or seventh year that the policy is in force and all these amounts accrue and are paid at the end of the policy term. A terminal bonus might also be paid in the last year of the policy. The bonus depends on Company performance.

A child endowment plan is unique as it has a clause that if the parent were to die before the maturity of the policy one’s child would still be taken care of. In India child endowment plans are taken with a waiver of premium rider. The premium amounts might be slightly higher as they provide a unique benefit. This policy has a sum assured or a guaranteed payout made in case of the unfortunate demise of the parent before the maturity of the policy .The insurance Company then bears the remaining premium payments till the maturity of the policy. At the time of the maturity of the policy a second guaranteed lump sum is paid out.There are twin payouts in this policy .One at the time of death of the parent and the other at the maturity of the policy. In addition if the plan is participating in nature bonuses accrue at regular intervals .It is very important to opt for a waiver of premium benefit in these plans to tap in the twin payouts.

What are the salient features of a child endowment policy?

Riders in Children Education Plans:

What are riders in a child endowment policy?

I would like to end this article stating how important a child endowment policy is for the financial security of one’s child and a waiver of premium rider taken is a clincher in this policy. There is no point in postponing what has to be done today. The time is ripe to take a child endowment policy.