What is it?
It is a unit-linked insurance plan (Ulip) tailor-made to help you invest for your child’s future.
What do you get?
Like any other Ulip for children, this is also a type II plan, which returns both the sum assured and the fund value if the policyholder dies. At first, the policy returns only the sum assured to the child or the beneficiary. Subsequently, all the future premiums are waived and the company invests the sum of all the future premiums in the funds chosen by the policyholder. On maturity of the policy the beneficiary gets the fund value and the policy terminates.
This plan also has a joint life option, which is suitable if both parents are working. Under this option, if one parent dies, the policy will not pay the sum assured but will waive all future premiums and invest a lump sum in the chosen funds. On maturity, the fund value is paid. However, if the second parent also dies during the term of the policy, the beneficiary gets the sum assured, too.
If the policyholder survives the term, he gets the fund value back on maturity.
The plan offers loyalty addition to those who stay on for the long term. The loyalty additions are given as a percentage of the premium and they begin from the 10th year in blocks of five years thereafter. The plan also offers two investment strategies—you could either choose from different investment funds or opt for a systematic allocator which moves your money from equity to debt as you near the maturity period.
How good is it?
The premium allocation charge, a straight deduction from the premiums you pay, is 3.15% in the first year and nil subsequently. The policy administration charge is 6.30% of the annual premium for the first five years; it becomes 3.15% from the sixth year. This charge is capped at Rs 6,000 per annum. The fund management charge is fixed at 1.35% for all the fund options available in this policy.
Illustratively, for a 35-year-old, a regular premium of Rs 1 lakh for a sum assured of Rs 15 lakh will return Rs 48.41 lakh or around 7.83% over 20 years. Interestingly, in the case of joint life option, the mortality charge hurts less and the returns are up at 7.99% for the same parameters. This is because the risk is spread across two individuals instead of one and the sum assured is paid only if both parents die.
Mint Money take
This plan is one of the few in the market with a higher than average post-cost yield. If your child is young and you are worried about the future then you could consider the plan especially if both of you are working individuals since the cost benefit is higher.