Name of the product
Birla Sun Life Insurance Classic Child Plan
What is it
It is a Ulip that works like an investment plan not only when your child is young, but also when he/she becomes a major.
What do i get?
It is a type II Ulip that gives the beneficiary or the child the sum assured on death of the policyholder or parent and waives off future premiums and pays the fund value on maturity. If you live through the term, the policy returns the fund value on maturity.
There is a savings date in this policy that you need to choose. The savings date is basically the premium paying term. On expiry of the savings date, the policy makes the child the policyholder and continues for a fixed term of 20 years. Through this feature, it aims to offer two investment plans—one to the parents for their children and the other for the child when he grows up.
When the child becomes the primary insured, the parents become the beneficiary on death. At this point, too, it will work like a type II Ulip.
Additionally, the policy offers guaranteed additions after the 10th policy anniversary.
What are the costs?
The premium allocation charge—which hacks a part of your premium before any investment is made—is applicable till the savings date. It is 7.5% in the first year, 6.5% in the second year and 5% from the third year onwards.
The policy administration charge is Rs 20 per month for the first five years and goes up to Rs 25 per month in the sixth year. Thereafter, it will increase by 5% every year. The fund management charge varies from 1% for the debt fund to 1.35% for equity funds. The mortality charge depends on the age of the policyholder and the term chosen and also takes into account the waiver of premium rider that is in-built in the policy.
Over a 20-year horizon, assuming a 35-year-old takes a policy for a premium of Rs 1 lakh and sum assured of Rs 20 lakh, the return on the policy comes to 7.57%, assuming it grows by 10%. After 20 years, when the plan flips to become a regular Ulip with the child as the policyholder without the need to pay any premium, the fund value continues to grow without any premium allocation charge for a fixed tenor of 20 years. The returns on the policy after total 40 years is 8.26%, assuming growth at 10%.
Mint money take
We find the plan extremely complicated. If you still decide to go ahead and buy, make sure you understand the features and only invest for the very long term.