Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Money / Personal-finance/  Product crack: Max Life Future Genius Education Plan
BackBack

Product crack: Max Life Future Genius Education Plan

This is a traditional life insurance policy designed for child-related investments

iStockphotoPremium
iStockphoto

Max Life Future Genius Education Plan is a traditional life insurance policy designed for child investments. It is a participating plan, so the extra benefits depend on the performance of the fund.

What do you get?

You start by choosing the sum assured (the guaranteed maturity value), the policy term and the premium payment term (PPT). The premium will depend on your age.

In terms of investment, this policy is a participating plan, which means every year the insurer will declare a bonus as a percentage of the sum assured. Once declared, the bonus becomes guaranteed. There are three ways to get this bonus: take home the bonus as cash payment; use it to pay the premiums and take residual amount, if any, as cash; or, as is the norm, add it to the sum assured (called the paid-up additions option). The bonus gets added to the sum assured on a compounding basis.

The payout to the policyholder starts from the last 4 years of the policy term and the sum assured is paid in four equal instalments at the end of each year. Till 3 months before payments start, the policyholder can alter payments to take the present value of the instalments as lump sum or defer till the end of the policy term fully or partially.

If you chose the paid-up additions option, then at the end of the policy term, along with the last instalment of the sum assured, you will get all the accrued bonuses. The insurer may also choose to pay a one-time terminal bonus under the policy.

In terms of insurance benefit, on death of the policyholder, the policy will pay the higher of 11 times the annual premium, sum assured, or 105% of premiums paid. The nominee can take this as a lump sum or as monthly income. Subsequently, the insurer will pay the future premiums so that the investment benefits are not affected. The plan will shift to paid-up additions option.

How does it work?

Suppose a 35-year-old buys this plan for a policy term of 18 years, annual premium of 1 lakh and PPT of 15 years. The sum assured comes to around 16.86 lakh. Assuming the participating fund grows at 8% and the paid-up addition option is chosen, the policy will pay bonus of 8.9 lakh at the end of 18 years. In the last 4 years, the policyholder will also get the sum assured back in four equal instalments of about 4.21 lakh each. This is a net return of around 5.34%.

Mint Money take

The idea behind a child plan is good because not only does the nominee get the death benefit, premium waiver ensures the maturity corpus is not affected due to the policyholder’s death. This plan also offers the flexibility to defer payouts or take them as lump sum in the beginning. Even costs measured as the difference between gross yield and net yield seem competitive. But there are two drawbacks. The first is returns, which in traditional participating plans are 4-6%. A Public Provident Fund, in comparison, currently returns 8.1%. The second is insurance, which is weak. You can instead consider a term plan with periodic payments on death to meet the investment target.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 06 Sep 2016, 07:02 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App