Premium Waiver Benefit in Child Plans

Table of Content

1. What is the Premium Waiver Benefit?

2. How the Premium Waiver Benefit Works in the Child Plan?

3. Benefits of Choosing the Premium Waiver Benefit in the Child Plan

4. Tax Benefits for Indian Parents

5. Summary

6. FAQ's on Premium Waiver Benefit in a child plan

What is the Premium Waiver Benefit?

The premium waiver benefit is an added feature in insurance plans, ensuring the policy remains active even if the policyholder dies or is permanently disabled. Consequently, the insurance company waives all future premium payments, while the policy stays active till maturity. 

The primary reason for this feature is to secure long-term financial objectives. This can include paying for a child's education, further studies, or marriage, without disruption during unexpected occurrences. With such a plan, parents ensure that their child's requirements will be fulfilled in the future, even if they pass away and cannot provide for them.

In India, Regulatory regulates the issuance of this benefit by insurers, keeping policies stable and secure for families planning their children's future.

How the Premium Waiver Benefit Works in the Child Plan?

Here is a step-by-step guide on how the premium waiver benefit in a child plan works:

Step 1: Buy the Policy

A parent purchases a child plan with a premium waiver rider.

Step 2: Covered Event Occurs

If the parent dies, suffers total permanent disability, or critical illness (if covered).

Step 3: Future Premiums Waived

The insurer waives all remaining premiums.

Step 4: Policy Continues

The plan remains active until the policy term ends.

Step 5: Child Receives Maturity Benefit

At maturity, the child still gets the full benefit, ensuring financial goals are achieved.

For example, a parent buys a ₹10 lakh child plan for 15 years. After 5 years, the parent passes away. The insurer waives all future premiums, and at the end of 15 years, the child still receives ₹10 lakh.

Benefits of Choosing the Premium Waiver Benefit in the Child Plan

Including the premium waiver benefit in a child plan gives financial security and peace of mind, ensuring that a child's future aspirations are safeguarded even in adverse situations. Here are the different benefits you will get from this benefit:

1. Uninterrupted Funding for Education and Life Goals

A major benefit is that the plan supports the child’s higher studies or marriage. Even if their parents are unable to pay premiums because of death or incapacity, their policy goes on.

2. Relief from Financial Stress During Crisis

This advantage eliminates any burden from the surviving family members, who would otherwise find it difficult to organise funds. The insurer bears future premiums so that the family is free to focus on healing emotionally and not on financial issues.

3. Flexibility as Built-In or Rider Option

This benefit is readily available in some child insurance plans, while others offer the same facility as a low-cost rider. Therefore, parents can select an appropriate plan depending on their financial planning requirements.

4. Tax Benefits in India

Premiums on child plans are tax-deductible under Section 80C of the Income Tax Act, 1961¹. Maturity proceeds are also tax-exempt under Section 10(10D) of the Income Tax Act1, 1961, adding to savings.

5. Peace of Mind

Parents gain a sense of security in knowing that their child's aspirations will be met, no matter what happens in life. This sense of emotional security makes the premium waiver benefit invaluable. 

Tax Benefits for Indian Parents

Indian parents who go for a premium waiver benefit in a child plan also benefit from useful tax benefits. Premiums paid for these plans are eligible for deduction under Section 80C of the Income Tax Act, 19611, up to ₹1.5 lakh a year. 

Moreover, payouts in the form of maturity or death benefit are tax-exempt under Section 10(10D) of the Income Tax Act, 19611, subject to conditions. For Unit Linked Insurance Plans (ULIPs), an exemption is only available if the sum assured is 10 times or more than your annual premium. 

Such benefits not only secure a child's future but also save taxes for the parents. They should seek advice from a tax consultant for individualised advice.

Summary

A premium waiver benefit in a child plan provides uninterrupted policy benefits by waiving future premiums in case the parent is deceased or becomes disabled. Hence, it protects children's long-term objectives, provides tax benefits, and gives parents peace of mind.

FAQ's on Premium Waiver Benefit in a child plan

1. What is the Premium Waiver Benefit in a Child Insurance Plan?

Premium waiver benefit ensures that if the policyholder dies or becomes permanently disabled, future premiums are waived, and the child’s policy continues, securing maturity and other promised benefits without interruption.

2. Can I add the Premium Waiver Benefit after buying a child plan?

In most cases, policyholders must choose a premium waiver benefit during purchase. Insurers usually do not allow adding it later, though some may offer exceptions.

3. How does the Premium Waiver benefit impact the maturity benefit of the child plan?

Premium waiver benefit ensures maturity benefits remain intact, as the insurer pays waived premiums on behalf of the policyholder. This guarantees that your child receives full maturity value without financial disruption.

4. Does the Premium Waiver Benefit cover critical illness or disability?

Generally, a premium waiver covers death and permanent disability of the policyholder. Some plans extend it to critical illnesses, but coverage varies, so checking specific policy terms before purchase is essential.

5. Is the Premium Waiver Benefit automatically included in all child plans?

No, insurers do not automatically include a premium waiver benefit. They often offer it as an additional rider or feature, and policyholders must specifically opt for it while purchasing a child plan.

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