Name of the child ulip
ICICI Prudential Life Insurance Co. Ltd’s SmartKid Premier.
What do you get?
It is a type II Ulip that gives the beneficiary/child the sum assured on the death of the policyholder/parent and waives off all future premiums; the beneficiary also gets the fund value on maturity. If the policyholder survives the term, only the fund value is paid.
The policy offers two cover options: single life, which insures one individual, and joint life, which insures both parents. In the joint life option, in case either of the parents die, the sum assured is paid to the child on death and the fund value on maturity.
The Ulip offers three investment strategies. The first, fixed portfolio strategy, lets you choose the funds of your choice. The second, life cycle-based strategy, invests your money primarily into equities and rebalances towards debt as you grow older. The third, trigger strategy, maintains an equity-debt ratio of 75:25. When the markets go up, the gains are moved to a debt product and vice-versa.
The policy also offers loyalty additions after the 10th year.
The policy is transparent and has strict lock-ins to ensure that the money is used for the child’s future. It allows no alterations after the policyholder’s death—no change in the investment strategy, no partial withdrawals and not even surrender. The insurance regulator discourages partial withdrawals after the death of the policyholder, but many policies don’t state this upfront.
What are the costs?
The premium allocation charge, which hacks a part of your premium before any investment, is applicable only in the first year and is 2% of the premium. The policy administration charge is bigger at 0.47% per annum of the annual premium. However, in the limited premium payment option, once you are through with paying the premiums, it comes down to 0.10% per annum for the rest of the policy term. The fund management charge ranges between 0.75% and 1.35%. The mortality charge depends on the policyholder’s age and term; it is slightly higher for the joint life option.
If a 35-year-old takes a policy for a premium of Rs1 lakh and sum assured of Rs15 lakh for 20 years, the internal rate of return (IRR) comes to 7.32% if the fund grows by 10%. Make it a joint life policy, where both parents are insured at 35 years of age, and the IRR is 6.55%.
Mint money take
The joint life option is a very expensive proposition and will make sense only if both parents are financially indispensable as far as investing for the child’s future is concerned. Otherwise, take the single life option and keep a horizon of at least 10 years.