What is the meaning of premium waiver benefit?

by Manshu on May 7, 2013

in Insurance

One of the key things that insurance companies want to highlight in their child insurance plans is the premium waiver benefit, and Pankaj Parashar left a comment about this being the key feature of child insurances plans, and the need to look at it more closely.

When I was going through the plans, it did feel like premium waiver benefit is a great thing, but then I realized that it is not all that great if the insurance company is charging extra for it.

The premium waiver works in a very simple manner. If the child insurance plan covers the parent’s life and if something happens to the parents then you no longer have to pay the premium of the plan, and when the plan matures, your child will get the sum assured from the insurance company.

So in that sense the insurance policy does exactly what an insurance plan is meant to do, and there’s nothing remarkable about this feature. There is one benefit that I like though.

The benefit is that the child gets the money when their parent had originally planned for her to get the money, and I think this is a great benefit as far as the practical aspects of getting money from an insurance company, investing it on behalf of child, and also protecting the money from people who may take advantage of the situation is concerned.

I feel that this is indeed a useful feature to have, but as far as the financial angle is concerned, instead of paying money now, the insurance company is paying you later, and with inflation chipping away at the value of money, they are effectively paying less.

In this situation, I believe the child insurance plan should pay out more in the way of sum assured if they always pay a set amount after a certain point in time. If that’s not the case then you are still better off with a term plan that pays out immediately (at least financially).

In the coming days, I’m going to look at this feature closely on some of the insurance plans listed in my post yesterday, and if you had any other thoughts on what all I should be looking at, please leave a comment and I’ll try to address them as well.

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{ 2 comments… read them below or add one }

RiteshK May 7, 2013 at 11:21 am

I Think there is a plan from LIC which gives one Sum assured (S.A) immediately i.e. at the time of the parents’ pre-mature death. And then the original S.A at the policy maturity alongwith the bonuses etc.
I think this makes sense because the policy does its true job – supporting the child/family at the time of an eventuality as well as maintaining the course of the original purpose of the investment (whatever it be – child’s education, marriage etc)

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Annapurna May 15, 2013 at 11:45 am

Would like to share my observations on this. While this premium waiver benefit is inbuilt in most child education plans, now-a-days most of the ULIPs offer the waiver of premium rider as a nominal extra charge. Hence I feel, if one wants to invest in a ULIP anyway, it is better to invest in one’s name with the child as beneficiary and with the waiver of premium rider, rather than go in for the children’s plans. One, child plans are higher on charges, and secondly, one has lesser choice, as most insurance providers have only one or two child education plans. Among the other ULIPs, one has more choice and can choose the one which has the most attractive features and suits his or her requirements.

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