Name of the product
Max New York Life Insurance Co. Ltd’s Shiksha Plus II
What you get
It’s a type II Ulip that promises both the sum assured as well as the fund value to the nominee on the policyholder’s death. A typical child Ulip offers the sum assured immediately on death and the fund value on maturity. This policy pays the sum assured twice—once as a lump sum, the second time, 10% of the sum assured is paid every year. The policy also waives all the future premiums, pays the premiums on behalf of the policyholder and pays the fund value on maturity.
Apart from the choice of six funds ranging from debt to equity, you also get to choose between two investment strategies. The first, dynamic fund allocation, moves your investments from equity to debt portfolio as you near maturity in order to protect your capital. The second, systematic transfer plan, will systematically transfer your premiums from debt fund to equity fund so that you get the benefit of rupee-cost averaging: the same principal on which systematic investment plans work.
What are the costs
The premium allocation charge, which is a straight deduction from the premium, is applicable throughout the policy term and is 4% in case the premium is less than Rs1 lakh and 2% in case the premium is above Rs1 lakh. The policy administration charge is Rs600 per annum and will increase by 5% every year. The fund management charge ranges between 0.90% and 1.25% per annum. The mortality charge depends on the age, term and sum assured.
Assuming a 35-year-old takes a policy for a premium of Rs1 lakh for a sum assured of Rs20 lakh (the sum assured is fixed at 20 times the annual premium) over 20 years, the maturity value at the end of the term comes to Rs43.40 lakh assuming the fund grows at 10%. This means the internal rate of return is 6.91%.
Mint money take
The benefits are very generous given that the sum assured is paid twice. However, they come at a cost. A child Ulip gives the sum assured immediately in order to take care of immediate financial crunch and gives the fund value on maturity to fund the goal for which it was bought. If you have appropriate cover and other assets, you may not need twice the sum assured.
However, do a need analysis: if you are depending only on your child Ulip to take care of all the needs of your child, this is a good plan to take.