What is it?
It is a traditional investment-cum-insurance plan targeted at meeting the financial needs of your kid’s education. Since it’s a traditional plan, it invests very little in equities. It gives yearly payouts and two lump-sum benefits. The former can be used to pay tuition fees and the latter can be used for higher education.
What’s on offer?
Similar to other child plans, the benefits don’t stop because of the death of the policyholder or the parent. In case the parent dies during the policy term, the entire sum assured as well as other benefits will be paid. Like other traditional life insurance policies, the plan does not disclose costs involved.
Does it work?
Though the policy seems good for anyone looking for goal-based savings for their children, the takeaway from the policy is not huge. For instance, the yearly payout starts only when you have finished paying all the premiums. The premium paying period ranges between five years and 13 years depending on whether you start the policy when the child’s age is nine years or he is just born, respectively. Given that the maximum period for yearly payouts is five years starting at 13 years of age, if you enter the policy when the child is 12 years of age, you only get one yearly payout when the child is 17 years of age because your premium paying term ends when the child turns 16. However, unlike a traditional policy that throws up a premium depending on the sum assured, this plan has limited premium options and the sum assured will depend on the age of both the parent and the child and the tenor.
Say, a 35-year-old parent buys this policy for a newborn for a sum assured of Rs13.75 lakh paying an annual premium of Rs50,000. When the child is 13, the policy will pay Rs20,000 every year for the next five years. When the child turns 18, the policy will pay Rs1 lakh and Rs11.75 lakh when the child is 21 and the policy will terminate. While the payouts tie in beautifully with the important milestones, the product fares badly on the returns scale. The above illustration yields just 5.26% per annum. The older your child is the lower the return will be.
Mint Money take
Prudent investment choice is one where you can manage to keep your money ahead of inflation. A yield of 5.26% is not sufficient even though the product scores high marks on structure and flexibility. If you are willing to trade returns for comfort, you could look at this plan if your child is very young. For others, we recommend investing in a mix of funds and maximizing Public Provident Fund contribution.