How single parents can build a child insurance plan: term cover, premium waiver, goals and tax

A single parent is the carer, the household's money manager and the only earner. No one shares the school fees, and if something happens to the parent, no one is left to run the home. A child policy can ease some of this burden, but only if it is structured properly. Which plan to buy matters as much as how it is built.

In a household with two parents, losing one is a severe blow, yet one source of income usually remains and the child's plans continue in some form. A single parent has no such cushion. If the parent's income stops, the child loses the carer and the financial support on the same day. Whatever arrangement is made should therefore do two things: build money for the child's future, and keep paying for that future even if the parent is no longer there.

Start with term cover. Most people skip this step, though it is the foundation. A child plan is mainly a savings product, so the life cover inside it is often quite small. Term insurance gives far larger cover for a much lower premium, and it is what the child would actually depend on if the parent were gone. The cover should be enough to meet day-to-day expenses until the child becomes self-reliant and to clear the parent's debts. A child plan can then be built on top of it for fixed goals such as college.

A premium waiver is a feature single parents should not compromise on. If the parent dies during the policy term, the insurer pays the remaining premiums. The policy continues and the child keeps receiving money at the stipulated ages. Without it, the plan can effectively stop once the instalments stop. When looking at any child policy, check whether the waiver is included or offered as a rider, and read carefully the conditions under which it applies.

Fix the goal before choosing a plan. In most families the biggest expense is higher education. Find out what the course costs today, then factor in the rise in fees. Education costs in India are often assumed to rise by about 10 per cent a year. At that rate, a degree costing Rs 15 lakh today would cost about Rs 52 lakh in 13 years. So if the child is five now, the target by the age of 18 would be a sum of this order. The same calculation should be made for other plans such as a master's degree or study abroad.

Must the money come in one go? Not necessarily. Many child plans allow the money to be taken in instalments instead of a lump sum at the end: some at 18 for admission, some at 21 when the degree or postgraduate entrance comes up, and the rest at 25. This way the money arrives when fees actually have to be paid. It is also a quiet safeguard against a large sum being spent too soon, which matters when someone else is managing the money for the child.

Child plans are generally of two kinds. Market-linked plans, often ULIPs, invest the money in equity or debt funds. Over the long term they can grow more, but their value moves up and down with the market. Guaranteed plans pay a fixed sum, so the parent knows in advance what to expect, though the growth is usually lower. If the child is young and the parent can bear some fluctuation, a market-linked plan may suit. If a firm sum is needed, choose a guaranteed one. The best child plan is the one that matches the parent's time horizon and appetite for risk.

Do not stretch the premium. On a single income, it is tempting to take the biggest plan this year. But a policy whose premium the parent cannot pay does more harm than good, because missed instalments can reduce the benefits or lapse the policy. Choose an amount that can be paid even in a lean year, and keep a separate emergency fund for sudden expenses. It is better to start small and increase later than to take more now and struggle afterwards.

Who will look after the money if the parent is gone? Many single parents put this off, but it cannot be put off. If the child is a minor when the money becomes payable, someone else will receive and manage it on the child's behalf. Name an appointee in the policy, a trusted adult who will manage everything until the child turns 18. Also make a will naming a guardian. Talk to that person beforehand so they know what is expected of them, and keep the policy papers where they can actually find them.

On tax, under the old regime the premium on a child plan counts within the Rs 1.5 lakh limit under Section 80C. The new regime, which is now the default, does not give this deduction. The maturity amount can be tax-free under Section 10(10D), but only if the policy meets certain conditions, including a limit on the premium paid in a year. Check how this applies to the chosen plan before buying.

In all, a child policy for a single parent rests on a few clear steps: take term cover first, make sure of a premium waiver, set realistic goals, time the payouts to the child's key milestones, and choose someone trustworthy to manage the money. Done this way, the money for the child's goals remains even if the parent's income stops.