New children's money-back policy: Not a great plan

Child plan offered by insurers usually allow you to plan for your children’s education needs in the future while also providing a risk cover on your life. If you, the parent, unexpectedly pass away, the child’s future is secured by way of the proceeds from the claim.

But LIC’s new children’s money-back plan is quite different. This plan covers the life of your child. In the untoward (and unlikely) event of the child’s death, the parent gets the sum assured. If the child survives, you get a predefined lumpsum.

Plan features

This Child plan is available for children of the age up to 12 years and has an insurance as well as savings component. The minimum sum assured is ₹1 lakh. By design, this policy will mature when the child turns 25. For instance, if the child is 10 years old when you take the policy, the insurance term will be 15 years. In case of death of the child during the policy term, the sum assured — either 10 times the annual premium, or 105 per cent of premiums paid, whichever is higher — will be given to you, the parent, along with any bonus.

The company guarantees two benefits for the child on surviving the policy period. One, your child will receive 20 per cent of the sum assured on the completion of 18 years, 20 years and 22 years. Two, a maturity benefit equal to 40 per cent of the sum assured plus any reversionary and final bonus declared by LIC is guaranteed on maturity of the plan. The bonuses depend on LIC’s discretion and the reversionary bonus will accumulate only a simple interest basis.

Now, it is quite unlikely that anyone would like to claim the insurance benefits on the death of one’s child. But what if an untoward incident happens to you?

Well, this policy does offer a ‘premium waiver benefit’ in case of the proposer’s death during the policy term.

However, this is a rider, requiring you to shell out additional premium. The rider is only given to parents between the age of 18 to 55 years. Death of the proposer within the first 12 months of the policy issuance or within 12 months of policy renewal will not entitle one to the benefit.

Insurance is usually recommended only for earning members of a family. In any case, hardly any parent would like to ascribe a monetary value to the life of their child.

Our take

To add to this, the features of the plan are unfriendly to the investor. One, most insurance companies give a premium waiver benefit on children’s plans so that the child can continue to enjoy Child plan benefits even if an untoward event happens to the parent. But this scheme offers life cover for the child and requires you to pay additional premium for your own life cover.

Two, availing of the rider carries conditions too. The plan specifies that if the child is below eight years, there will be a waiting period for the death cover.

Further, the plan’s returns are also quite low.

The benefit illustration estimates the net return at maturity at about four per cent, assuming a gross return of 8 per cent.

If you have a 10- or 15-year term in mind, a combination of a pure term cover for the parent plus an investment in balanced funds will be a much better way to build wealth for your child. If you are a conservative parent with a girl child, you may also look at the Sukanya Samriddhi scheme or else consider the PPF.

[Source: http://www.thehindubusinessline.com/features/investment-world/beyond-stocks/lic-new-childrens-moneyback-policy-not-a-great-plan/article6996112.ece]

Polishing the future of the “Diamond” of your life

With the ever rising cost of education, inflationary increase, luxurious lifestyle pattern etc.; saving for children's better and secured future has become an important goal for the parents. All parents dream that their children get to pick the best possible educational institutes or career options and excel in life without any financial constraints. As parents we can always postpone or even compromise on our comforts such as buying a home or a car but we cannot postpone our child's education. Planning allows parents to support children with special needs required to fulfill their hopes and dreams in life.

Identify the Needs

As you identify new needs, you will have to revise your planning structure to address them. And as and when these goals are achieved, you will need to define new goals. So it’s a continuous process of better and sound future planning. To plan the future of your child, it is important to calculate the amount of fund needed for education, the number of years for which cash flow is needed, and how far we are from achieving the desired goal from today. Planning ahead and making investments towards child's secure future at an early stage are the critical success factors in realizing this goal.  

Child Insurance Plan

Child plans are one such way of securing your child's financial future, and they are different from mutual funds or other insurance plans in many ways. Child plans are insurance policies which are either traditional policies or unit linked insurance plans. Typically, in child insurance policies one parent is specified as the policy holder and the child is specified as the nominee. The most important benefit in children’s insurance plans is that even if the parent were to meet with an unfortunate event your child’s needs would still be taken care of. If the policy holder survives the tenure of the policy, periodic payouts are made at predefined intervals.

Importance

Life insurance policies for children are more affordable than any other life insurance policy. Investment in children insurance plan is somewhat similar to an ULIP investment. The only difference is that the investors are the parents while the final beneficiary is the child when he/she grows up. In case the parent dies, a lump-sum amount is given to the family but the child plan doesn't terminate itself. It acts as a corpus that remains intact till its exact maturity date. The returns on insurance policies for children are tax-free and can save you a lot.

Conclusion

Most of the parents opt for the child plan due to the fear of lack of financial security, untimely incidence such as death which can seriously hamper your child’s future. A child plan will make the parent continue investing year after year, thus ensuring that he saves enough for the kid. Insurers say child plans are structured to meet the needs of the child and the waiver of premium feature in a child plan is the key feature of it. When buying child insurance, search for policies that emphasize on cash value. Most importantly, buy insurance while your child is young to take advantage of low rates and high returns.