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Child-specific insurance is minor’s best bet

Child-specific insurance is minor’s best bet
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First Published: Wed, Feb 20 2008. 12 40 AM IST
Updated: Wed, Feb 20 2008. 12 40 AM IST
LIFE INSURANCE
What is the procedure for changing the nominee of an insurance policy?
—B.R. GAUR
You can change the nomination of your life insurance policy at any time after its commencement by sending a request to your insurance company. For this, you shall be required to submit the change in nomination form duly filled, signed and witnessed.
When you make a nomination, you continue to be the owner of the policy and the nominee does not have any right under the policy as long as you are alive. In addition, the nominee only has the right to give a valid discharge to the policy in the event of death of the policyholder and the nominee may not be the rightful owner of the policy proceeds. In such a case, the legal heirs may also have the right to claim their share from the nominee. Generally, insurers suggest only close family members should be named nominees.
I purchased a term insurance policy from SBI Life Insurance Co. Ltd two years ago. At that time, I had to undergo a medical test but I didn’t disclose that I was an occasional smoker and drinker. I had also stated that my parents are in good heath, although my mother had diabetes and high blood pressure, both in check. If any claims arise in the future, say 15-20 years down the line, can the insurance company reject the claim saying that I withheld information?
—D.S. PATHAK, EMAIL
Life insurance policies follow the principle of good faith, that is, the insured must disclose all facts material enough for the issuance of a policy. In case the insured hides a fact, which is material to the assumption of risk by the insurers and it comes to light at a later date, an insurance company can cancel the policy or reject the claim depending on the circumstances. So, it is advisable to disclose all possible facts at the time of taking the policy and answer the questionnaire with complete honesty to avoid hassles at a future date.
Also, it is important to understand that you have taken a term insurance in which medical tests are conducted to check your fitness level and rule out the existence of any disease at the time of issuance of the policy.
Your current health status and family medical history has the impact of changing your premium amount but would not make you ineligible for life insurance. So, in your own interest, it is advisable that you disclose all facts to your insurance company.
I want to invest some money for my three-year-old son to meet his college expenses later. What insurance policy would you suggest that will give me maximum returns in this period to meet the expenses?
—SHAILENDRA, EMAIL
You can opt for specific childcare insurance plans meant for children to save money for their education and marriage. The benefits under these policies are designed to coincide with the requirements of the children at different stages of life, that is, at the time of higher education and settlement in profession or marriage, among others. The main feature of a childcare plan is that the life of the parent as well that of the child is insured. Repayments are made at crucial stages at the age of 18-21, with bonuses. In addition, these plans also provide for an immediate payment of basic sum assured amount on the death of the parent during the term of the policy. The future premiums are waived and the policy continues to run uninterrupted. During the endowment term, if anything happens to the child, the premiums paid are refunded.
Before committing to a childcare plan, it is important to know that there is no provision for a surrender of the policy at any stage and if the premiums are not paid for any reason other than death or disability of the parent, the policy lapses.
NON-LIFE INSURANCE
Is there any policy available through which a person can insure paintings owned? If yes, as their market value will fluctuate, what impact will these movements have on the sum insured and the premiums?
—K. ANAND, EMAIL
You can either take a separate ‘all-risk policy’ for the paintings or you can include them as valuable possessions under the householder’s policy. In both cases, the risk covered will be more or less the same. Paintings are a work of art and their intrinsic value does not have much bearing on their market value. Therefore, the sum insured in such cases is either based on the cost of the painting (if purchased), or on the report of an approved valuer who is qualified to issue such reports.
Since there are no experts in the insurance sector dedicated to evaluating paintings or sculpture, insurance companies base their opinion on the advice of experts who are usually attached to recognized art galleries. They offer policies that are called “agreed value policies”. Once the sum insured is decided on the basis of the valuation certificate, it does not change with the market fluctuations in price unless a fresh valuation certificate is provided for further increase or decrease in the sum assured.
MUTUAL FUNDS
I have a lump sum of Rs2 lakh. Please suggest funds I should invest in to get a diversified portfolio.
—RAJEEV
You should look at four or five equity funds to help diversify fund manager risk. Diversified equity funds such as Birla Sun Life Frontline Equity, DSPML Equity, HDFC Equity, Magnum Contra, Sundaram BNP Growth and DSPML Top 100 are all good diversified schemes that you can invest in.
You can also invest a small sum in mid-cap funds. Reliance Growth and Birla Midcap are such funds. Investing your money through a systematic transfer plan instead of a lump sum investment can also be a good option since it will give you benefits of rupee cost averaging too.
I want to invest Rs2,000 per month in non-equity linked savings schemes (ELSS) mutual funds for a year. Which fund will give me good returns?
—PINAKI, EMAIL
Your decision to make periodic investments is the right one since it gives you benefits of rupee cost averaging. However, one year is too short an investment horizon for equity investments. Consider a longer time frame. Depending upon your willingness to take risk, you can invest in diversified equity funds such as DSPML Top 100, Birla Sun Life Equity and Reliance Vision.
Among Reliance Growth, Reliance Vision and Reliance Diversified Power Sector Fund, which one is likely to give the best returns through the systematic investment plan (SIP) route?
—MATTAJAY, EMAIL
The three schemes have different investment mandates. While Reliance Growth focuses on the mid-cap segment, Reliance Vision has a large-cap orientation and Reliance Power is a sector fund. All three funds have done very well among their respective peer groups and are worthy of investment. Consider your overall portfolio and decide the scheme that fits the bill.
Is there a right time to quit a mutual fund? What factors should be kept in mind before taking such step?
—HITESH GAUR, EMAIL
The right time to redeem your investment is when you need the money for the purpose for which you had started the investment programme in the first place. Apart from that, persistent underperformance, straying from the stated investment objectives, frequent changes in the fund management team, and increase in the expenses of the fund are reasons that demand a review and exit from a fund.
Please suggest some good liquid funds. Do they give the benefit of tax exemption?
—RAJESH, EMAIL
You must look at liquid funds only for parking funds for very short periods of a month or less. The dividends from these schemes are exempt from tax though there is a dividend distribution tax of 25% (plus surcharge and education cess). HDFC Cash Management, Tata Liquid and Birla Cash Plus Retail are among the good liquid funds.
I want to start investing in a systematic investment plan for the future of my three-year-old daughter. Do we have a mutual fund where I can open an account in her name in order to save and invest for her college education? Will I get tax benefits?
—M. PURANIK, EMAIL
A systematic investment plan is the best way to approach a long-term investment plan, such as saving for your child’s education. There are children-specific mutual funds (MF) from ICICI Prudential MF, HDFC MF and SBI MF, among others. They are similar to conservatively managed balanced funds and may either be predominantly equity- or debt-oriented.
But there are no specific tax benefits on investments made in any of these schemes. You can also consider building a portfolio of balanced funds such as HDFC Prudence, Kotak Balance and Magnum Balanced and diversified equity funds such as DSPML Equity, Magnum Contra, Birla Sun Life Equity to fund your daughter’s education. Dividend income from equity-oriented funds is exempt from tax as it is long-term capital gain.
The views expressed on this page are not the newspaper’s opinion and are provided for information purposes only by Outlook Money. Readers are requested to do their own research. Neither Mint nor Outlook Money will be responsible for any actions and outcomes based on information provided here.
(Please send your questions and comments to moneymatters@livemint.com)
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First Published: Wed, Feb 20 2008. 12 40 AM IST