Exemption under Section 10(10D)

YES, provided the annual premium qualified 10% or less of assured value.

1. According to sec 10(10D), LIC maturity amount will be exempted if the premium paid is not more than 10% of the sum assured. 
2. However, it is exempted only in the hands of the person who has taken the above policy even if the maturity amount is received by some other person. In your case, the amount will be exempted only in the hands of parents. If the maturity proceeds were provided to the children after that, it will be treated as a gift in the hands of Children (not taxable). 
3. In either transaction, there will not be any tax liability. But the correct way is to show the above maturity amount in the hands of parents and claim exemption u/s 10(10D).
Please correct me if the above interpretation has an alternative view.

1. Then, in that case, it will be exempted in the hands of children.

To my understanding. Yes, it should be exempt in the hands of children

No problem.