Among all the huge numbers of life insurance products, child insurance plans and endowment plans are perhaps two of the most talked about options. Both secure futures and provide long-term goals to those who opt for them.
What is a Child Insurance Plan?
Contribution of the child insurance plan is a special product introduced to give the child’s guardian a chance to save for your child’s future. It provides double benefits; life insurance coverage for the parent or guardian and also has a savings function, which means that the constructed money could be used for providing different needs of the child. This may include education, marriage, or any other significant events that may come later.
Key Features of a Child Insurance Plan:
- Maturity Benefits: This amount the child receives is the one accrued at maturity, which is irrespective of whether the policyholder dies.
- Waiver of Premium: In case the policyholder dies prematurely, further payment of premiums is waived by the insurance company. The policy then continues in operation so that the monetary objectives of the child are not sabotaged.
- Partial Withdrawals: Most child insurance policies permit partial withdrawal, thus taking care of medium-term needs, such as school fees or college fees.
- Investment flexibility: Several plans provide flexibility between conventional saving plans and market-linked ULIPs that offer higher returns.
What is an Endowment Plan?
An endowment plan is a life insurance policy that acts as both an insurance policy and a savings fund. The benefit amount of the policy is paid either at the end of the term or at the death of the policyholder; it is general and covers wealth building, debt clearance, and retirement planning.
Key Characteristics of an Endowment Plan:
- Guaranteed Returns: The maturity benefit, with the addition of bonuses, is assured and comes with a low-risk investment.
- Two Benefits: This policy, in addition to life cover, also provides for saving in a disciplined manner
- Fixed Tenure: As the tenure of the policy is fixed, maturity benefits come only at the end of the tenor or in case of death.
- Low-Risk Investment: These plans are ideal for those who cannot tolerate market fluctuations and hence require low-risk investments.
Child Insurance Plans vs. Endowment Plans
Though both contain an insurance and savings feature, their purposes and benefits are significantly different. The significant differences are as follows:
- Primary Objective: A child insurance plan is essential to secure the future of a child, which may involve specific milestones like education or marriage. An endowment plan, however, is more general savings and financial security, thereby catering to broader goals like retirement or wealth accumulation.
- Target Beneficiary: Child insurance benefits the child, especially the financial security that the parent will provide, even after the parent’s death. An endowment plan essentially benefits the policyholder and his family as a unit.
- Maturity Benefits: The amount received under the child insurance plan would primarily be available for the needs of the child in his future life. The maturity benefits of an endowment plan can be used according to the requirement of financial needs of the policyholder or his family.
- Flexibility: Usually, child insurance plans provide partial withdrawal facilities to fund child-related expenses during the policy tenure. Endowment plans do not provide for such flexibility, and benefits are available only at maturity or on the death of the policyholder.
- Risk Exposure: Child insurance plans may have market-linked investment options to generate potentially higher returns. Endowment plans are typically low-risk traditional savings products.
- High-deduction Waiver: Most child insurance plans have a feature that is often called the high-deduction waiver by which if the policyholder dies during the tenure then the policy keeps on rolling and generates payouts.
Situations to Buy a Child Insurance Policy
Child insurance policy is for those parents whose children are young and want them to be secure. Given are some situations in life whena child insurance policy serves its purpose:
- Planning for Higher Education: With increasing education costs in India and other parts of the world, child insurance will help you gather a decent corpus to fund higher education.
- Life Cover with Savings: Life cover is provided to the parent while saving money in the form of a corpus.
- Financial Independence for the Child: The plan will bring financial security to the child so that his aspirations need not be limited by monetary boundaries.
When to Take an Endowment Plan
An endowment plan is for a person in need of life insurance, together with a systematic saving scheme. Consider getting an endowment plan if you:
- You Desire a Low-Risk Saving Scheme: You should opt for an endowment plan if you are after a low and guaranteed return.
- Wealth Building towards an Objective: Whether one is building for retirement, that car, or clearing debt, an endowment plan provides the avenue for corpus development.
- Financial Protection for Loved Ones: Endowment plans will leave behind a financial inheritance in case of an untimely departure.
Child Plans vs. Endowment Policy: What is Best?
The choice between a child insurance plan and an endowment plan will depend on your financial objectives and priorities. Here are a few considerations:
Goal Oriented Savings:
- Choose the child insurance plan if the primary purpose is to save for the future of the child.
- Choose an endowment plan if the aim is more generalized, such as wealth accumulation or retirement.
Risk Appetite:
- A child insurance plan with ULIP options is suitable for risk-takers who can take moderate risks for higher returns.
- An endowment plan is suitable for risk-averse investors.
Flexibility:
- If you require partial withdrawals to meet expenses, a child insurance plan is better suited.
- For fixed, disciplined savings without any withdrawal, an endowment plan is better.
Life Stage and Priorities:
- Parents who have young children should go for child-specific plans that are designed to cater to their specific needs.
- These are those people who do not care about the children; they will use endowment plans.
Innovative Perspectives: Why Not Both?
Choosing one product is not a decision taken by financial planning; such does not mean leaving other things behind. Combining child insurance with endowment will come along with comprehensive coverage and also a larger flexibility. For example
- Use child insurance when marking special milestones of life.
- You are at the same time investing in creating an endowment plan towards a general-purpose corpus for future life goals or emergencies.
This way, while focusing on the child’s future, there is always this safety net in place.
Conclusion
Child insurance plans and endowment plans are two of the most important products in the financial planning journey. While a child insurance plan caters to the financial independence and future goals of your child, an endowment plan caters to disciplined savings for broad objectives with financial security.
In this case, for those who would like to provide their child’s dreams for security, the child insurance plan is vital. While a person in need of a long-term, low-risk savings option has his trust in an endowment plan.