Why Is Waiver of Premium Rider Important In Case of A Child Plan?

A child plan is essentially bought with the purpose of providing adequate financial security to a child during his growing years. It serves the following two purposes:

Provides financial support at crucial milestones in a child’s life like higher education, marriage etc. with pre-planned payouts while at the same time providing maturity benefits too.

Unlike regular life insurance policies where the policy ceases to exist after the death of the insured, a child plan continues till the maturity of the policy. It not only provides a death benefit to the child, but also the maturity policy proceeds of the plan at the time of maturity. This is where the waiver of premium rider comes in.

What Is Waiver Of Premium Rider?

This is a benefit provided by the insurers under which the child need not pay any further premiums in case the insured dies during the term of the plan. All future premiums are waived off and the insurer pays remaining premiums towards the policy. In some cases, the insurer also provides this benefit if the insured is diagnosed with a critical illness.

Why Is The Waiver of Premium Important?

It helps to keep the policy active till the maturity date so that the child receives financial benefits as per the policy terms at important stages of his life

The child is relieved from the liability of arranging funds to keep the policy active as future premiums are paid by the insurer.

The child gets double financial benefits: first, at the time of death of the insured in the form of an entire sum assured and secondly, at the time of maturity of the policy in the form of maturity benefits or fund value depending on the type of the child plan along with any bonuses, if applicable.

Important milestones in child’s life like higher education, marriage etc. will not face any financial hiccups

Elaborating With a Case Study

Mr. Arora bought a child plan for his 2 year old son for a sum assured of Rs. 15lakhs for a term of 20 years. Unfortunately, he passes away after 7 years of buying the policy. At this point, the insurer will pay the entire Rs. 15lakhs to his son (nominee) as a death benefit and will waive off, the future premiums pending for 13 years. The policy will remain active, the premiums will then be paid by the insurer and if it’s a traditional plan, the child will be paid the maturity benefits at the time of expiry of the plan and if it’s a unit linked child plan, he will receive the maturity value.

In case the insured outlives the term of the plan, even then there are maturity benefits depending on the type of plan he has selected. In short, it is a win-win situation for the child as his upbringing and financial needs are well-taken care of till he grows up to be an independent man.

Waiver of Premium as an Inbuilt Benefit or a Rider?

A lot of companies offer this benefit, but some of them make it a part of basic benefits offered in the plan and some charge a nominal amount of extra premium to add this feature in a basic child plan.

Child Plans: These are the insurance plans bought by the parents to safeguard their child’s future in case of the parents’ demise. These plans also double up as an investment tool that provides financial support to the child at important stages of his life like at the time of higher education, marriage etc.

The term plan ends with the insured’s death. The nominee gets the sum assured as a lump sum payment and the policy ceases to exist. A child plan carries on even after the death of the insured. The child will get the sum assured at the time of the death and the policy will continue till the expiration of the entire term when he will receive the fund value as part of the maturity benefits.

This feature is only available for the child plans. Here the insurer waives off the premiums payable on the policy after the death of the insured. The remaining premiums on the policy are paid by the insurer till the policy term ends. There is no such benefit offered under term plans, which cease to exist after the death of the insured. The nominee is only eligible for death benefits and has to buy a new insurance cover/investment plans for future coverage.

Source: http://blogs.rediff.com/childplans/2016/07/04/ritikashah11998-19/