Yes, insurance can be issued to a minor, but it comes with certain conditions. A minor, being under the age of 18, cannot legally enter into contracts, including an insurance contract. Therefore, while a policy can be issued in the name of a minor, the contract will need to be handled by a legal guardian (usually a parent).
When the minor reaches the age of 18, they gain full control of the policy, assuming ownership and decision-making responsibilities. Policies for minors typically include life insurance, health insurance, and certain savings-based insurance plans designed to help meet future financial needs like education or marriage.
Types of Insurance Policies for Minors
1. Life Insurance for Minors
While life insurance for minors might not be as common as for adults, it does exist. Many parents choose to invest in a Child Insurance Plan, which provides a combination of life cover and savings for future financial goals, such as higher education or marriage. These plans come with certain unique benefits:
- Premium Waiver Benefit: In the event of the unfortunate demise of the parent (policyholder), the insurance company waives future premiums while the policy remains active, ensuring the child’s financial goals are met.
- Maturity Benefits: At the policy’s maturity, a lump sum payout is made to the child or the legal guardian for financial needs like education.
2. Health Insurance for Minors
Health insurance can be purchased for minors, either as a part of a family floater policy or as an individual child health insurance plan.
- Family Floater Health Plan: Under this plan, the entire family, including children, is covered. These policies provide coverage for hospitalization, critical illness, and even maternity benefits. Family floater plans are cost-effective and are commonly chosen by parents for their minor children.
- Individual Child Health Insurance: These policies are specifically designed for children and cover various health risks, accidents, and critical illnesses. It provides financial assistance in case of any medical emergency.
Why Consider Insurance for Minors?
1. Financial Security
Insurance for minors is primarily taken out with a long-term vision. Whether it’s saving for higher education, securing funds for their future, or protecting their health, insurance helps parents plan better and create financial stability for their child’s future.
2. Lower Premium Rates
Insurance policies bought early tend to have lower premiums. Since minors have a long life expectancy and are generally in good health, insurers offer lower premiums, making it more affordable for parents to secure their child’s future.
3. Tax Benefits
Parents who take out insurance for their minor children can avail of tax benefits under Section 80C of the Income Tax Act. This helps in reducing the overall taxable income while securing the child’s future.
4. Building a Corpus for Future Needs
For life insurance plans that have an investment component (such as ULIPs or endowment plans), starting early helps build a significant corpus for future financial milestones like higher education or marriage. Child insurance plans allow for disciplined savings over a long period, thus ensuring that the child’s financial goals are met without any disruption.
Legal Aspects of Insuring a Minor
1. Role of Guardian
Since minors cannot enter into contracts, a parent or legal guardian must sign the insurance contract on behalf of the minor. The guardian is responsible for maintaining the policy and paying the premiums until the child reaches the age of 18.
2. Ownership Transfer at 18
Once the child turns 18, the ownership of the policy is transferred to them. They can then decide whether to continue the policy, add additional riders, or make changes according to their financial needs.
3. Restrictions on Insurance Sum Assured
When insuring a minor, there may be restrictions on the sum assured for life insurance policies. This is because minors are considered financially dependent and do not have income. As such, the sum assured typically corresponds to the guardian’s financial ability and insurance coverage.
Things to Consider Before Insuring a Minor
1. Long-Term Commitment
Insurance policies for minors often have a long-term tenure. Parents should carefully assess their ability to pay premiums consistently over the years.
2. Coverage vs. Investment
It’s important to strike a balance between insurance coverage and investment. While child insurance plans offer a good savings opportunity, it is essential not to overlook the primary objective of providing adequate life cover or health coverage for the child.
3. Check the Premium Waiver Clause
In life insurance policies for minors, it is essential to opt for a premium waiver rider. This ensures that if something happens to the guardian, the policy will remain active without any further premium payments, securing the child’s future financial goals.
Conclusion
Insuring a minor can be a strategic decision to ensure their financial security and future needs are met. Whether through life insurance to build a financial corpus or health insurance to protect against medical emergencies, taking an early step helps provide peace of mind to parents. However, it’s essential to carefully evaluate the insurance policy, its features, and the long-term financial commitment it entails. Speak with an insurance advisor to understand which policy best suits your child’s needs and your financial capacity.
