Name of the child ULIP
Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd’s Future Smart Plan.
What do i get?
It is a type II Ulip that gives the beneficiary or the child the sum assured on the death of the policyholder or parent and waives all future premiums for the remaining policy tenor or the premium-paying term. Once the policy matures, the beneficiary will get the sum assured. If you live past the term of the policy, you get the fund value.
Apart from the regular switches that most policies offer, this policy allows you to choose the safety switch option that directs your money systematically from equity to debt funds in the last three years of the policy term. It also offers the “auto funds rebalancing” choice that maintains your asset allocation.
In terms of flexibility to your benefits, the plan allows you to increase or decrease your sum assured once every year with a total limit of three changes during the policy term, starting from sixth policy year.
It also offers a “milestone withdrawal feature”. If you opt for this feature, you will receive 15% of the fund value every year during the last five years of the policy. The balance will be paid on maturity. However, this option is available only when you choose a policy term of 15, 20 or 25 years.
What are the costs?
The premium allocation charge, which hacks a part of your premium before any money is invested, is applicable only in the first 10 years and it is lower if you choose the electronic clearing system (ECS) or give standing instruction. In the first year, it is 8.25% if you choose the ECS mode of payment and 8.40% if you choose any other mode. It tapers off to 5.30% from the fourth year in the ECS mode and becomes nil from the 11th year. The policy administration charge is 0.05% of the annual premium in the first five years and increases by 20% every five years. However, it can be a maximum of Rs 500 per month. The fund management charge is fixed at 1.35% except for liquid funds for which it is 0.80%. The mortality charge depends on the age of the policyholder and the term chosen; the cost of waiver of premium rider is in-built in the policy.
Over 20 years, assuming a 35-year-old takes a policy for a premium of Rs 1 lakh and sum assured of Rs 15 lakh, the internal rate of return on the policy is 7.28%, assuming the fund grows by 10%. A cost of 2.72 percentage points is on the higher side.
Mint money take
The costs are on the higher side and the policy is front-loaded. If you choose this policy then keep a long-term horizon.