Child Plan (Insurance)
A child plan is a combination insurance and savings product offered by life insurers in India that is designed to accumulate a corpus for a child's education or marriage, typically featuring a premium waiver benefit on the death of the parent (proposer), ensuring that the policy continues without further premiums and the child receives the maturity benefit at the predetermined age.
Child plans in India were structured primarily as endowment or ULIP (Unit Linked Insurance Plan) variants with a proposer-insured split — the parent was typically the proposer (premium payer and owner) and the child was the life insured. The distinctive feature was the waiver of premium rider, which was either built into the plan or available as an add-on. Upon the death of the proposer, all future premiums were waived by the insurer, and the policy continued in force with the insurer funding the remaining premiums. The child received the full maturity benefit at the stipulated age — 18, 21, or 25 depending on the plan — regardless of whether the parent was alive to continue premium payments.
The education funding objective was embedded in the product design. Many child plans offered partial withdrawals or structured payouts at key milestones: at the time of university admission, at graduation, and at postgraduate or professional course enrollment. These payouts were calibrated to coincide with the anticipated education expenses, providing a quasi-systematic withdrawal from the accumulated corpus at planned stages of a child's educational journey.
ULIP-based child plans allowed the parent to choose between equity, debt, and balanced funds within the policy, providing market-linked growth potential. For parents with an 18-20 year investment horizon (starting when the child was young), a high-equity allocation within a child ULIP could potentially generate inflation-beating returns. However, ULIP charges — including premium allocation charges (especially in older products), policy administration charges, mortality charges, and fund management fees — eroded returns compared to direct mutual funds with equivalent equity exposure.
Traditional child plans (non-ULIP) offered guaranteed additions or reversionary bonuses, providing predictability on the minimum maturity corpus. LIC's Jeevan Tarun and Jeevan Ankur were examples of participating traditional child plans. The guaranteed sum assured plus accrued bonuses defined the minimum death benefit and maturity benefit, with terminal bonuses declared at the insurer's discretion adding upside.
IRDAI regulations required child plans to clearly disclose benefit illustrations showing guaranteed and non-guaranteed benefits separately, with an assumed fund growth rate of 4% and 8% (for ULIPs) or equivalent illustrations for traditional plans. This mandated transparency was intended to prevent mis-selling, which had been a documented issue in the child plan segment where agents emphasised potential returns without adequately disclosing charges, surrender penalties, and the risk of market underperformance in ULIP versions.
Critical evaluation of child plans suggested that for most families, a combination of a standalone term insurance policy on the parent (providing far higher death cover per rupee of premium than a child plan) and a dedicated investment vehicle such as a Sukanya Samriddhi Yojana account (for a girl child) or ELSS mutual fund SIP delivered superior risk-adjusted outcomes. The term policy ensured income replacement for the family broadly, while the investment vehicle accumulated the education corpus more efficiently. The child plan bundled these two needs but at a higher cost and with lower effectiveness on each dimension individually.