What is a Child Endowment Policy And Children 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 one's 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 a bulk of the corpus is invested in fixed income securities. About 90% of the profits realized are distributed as bonuses to the policyholders. 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 policies, 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 policies pay a one-off performance bonus on the surrender of the policy or at the time of a claim.