A child plan is an insurance cum investment plan
that serves a vital purpose in life. It not only secures the child’s future, but finances his or her higher education and marriage. In case of your unfortunate demise, the plan creates a corpus over a period in time that will shape the future of your child. As a loving and caring parent, a suitable child plan is your responsibility and family obligation.
As the child grows up in this fast-paced world, he would look for success through various career means initially before narrowing down to a single option. At this juncture, he would need your support and inspiration to boost his confidence to reach at his desired career destination. As a parent, you have to be his strong pillar of constant support and plan accordingly both financially and emotionally. In the journey of life, even if you are absent, you can ensure that your child doesn't miss out on opportunities due to insufficient funds.
But how can you make sure that the amount you invest is sufficient for your child’s future needs? For that you need to know how the maturity amount is calculated in insurance. Let us do it with an illustration.
Let’s see how Pritam, 32, a responsible father, starts investing a part of his income for his son Rohan.
Every month Pritam invests Rs.5000 for a period of 12 years. He then gets a sum assured of Rs. 8.9 Lakhs. This pay-out will definitely help Rohan to achieve significant milestones of his career in later stages.
When Rohan attains an age of 17 years and 19 years, just when his dreams are about to take shape, Pritam can get an approximate amount of Rs. 1.78 Lakhs from the child plan he invested in. Whereas, at the age of 21 years, he can get an approximate amount of Rs. 2.67 Lakhs to support Rohan.
Finally, when Pritam’s son turns 23, an approximate amount of Rs. 12 Lakhs at 8% interest rate, and Rs. 4.3 Lakhs at 4% would give him the right platform to give wings to Rohan’s future.
Depending on the child’s need, there is flexibility of pay-outs, which can also be deferred. Also, if Pritam passes away during this tenure, the policy continues and Rohan receives the amount at the time of pay-outs.
Calculating maturity amount
Unlike bank accounts or fixed deposits which have a straight forward interest matrix and a few charges as deductions, maturity calculations of insurance plans are pretty complex, with a series of charges and bonuses to consider.
Start with the offer document and note down all the applicable charges and bonuses and then the maturity can be calculated. However, charges may differ from year to year based on the insurance provider.
A step by step calculation is illustrated below.
||P1 - X1
||(P1-X1) + Y1 = B
||P2 - X2
||(P2 - X2) + B + Y2 = C
Applying the above formula year on year, one can calculate for a desired policy term. For instance, if policy term is for 10 years, then the value that would appear in the balance column for the 10th year will be the maturity benefit. If sum of all the premiums are subtracted from maturity benefit amount, then you get your net returns.
Interests and bonuses are generally guaranteed additions, but there may be variable additions also which cannot be predicted in advance. Hence, it’s better not to consider them while calculating the final amount.
While buying a child plan, the steps to be followed are very simple. Firstly, select a sum assured amount, followed by assured pay-out options, and finally, premium paying term. Most of the insurers have provided a calculator in their websites, where by just keying in details like date of birth, age of child, sum assured, and policy term, one can easily get to know the maturity amount instantly.