Product Crack | Child unit-linked insurance plan (Ulip)

Product Crack | Child unit-linked insurance plan (Ulip)

Name of the child Ulip

Aviva Young Scholar Advantage

What do i get

What’s special

Apart from the choice of funds that range between pure debt and equity options, this policy offers flexibility in the level of protection and two investment strategies.

Insurance: It allows you to reduce the sum assured up to a prescribed limit whenever you wish to. But the premium doesn’t go down and once decreased, the sum assured can’t go up again.

Investment options: There are two options—systematic transfer and automatic asset allocation strategy. Under the systematic transfer plan, you can systematically shift your money from debt to equity fund. You can choose this option on any policy anniversary, except in the last two years. In the last two years, the policy shifts the entire corpus back to debt fund.

Under the automatic allocation plan, the reverse happens. It moves your fund from equity to debt in order to lend stability and reduce the risk as your fund nears maturity. However, you need to opt for this strategy at the time of buying the policy.

The policy also gives guaranteed loyalty additions of 1.5% of the fund value from the 11th year, every two years, till maturity.

What are the costs

The policy allocation charge, which hacks a part of your premium before any money is invested, is applicable throughout the term. It is 6% in the first year and tapers off to 3% from the sixth year if premiums are below Rs1 lakh and 2% if the premiums are above Rs1 lakh. The policy administration charge is 0.1% of the annual premium, capped at Rs175 per month. The fund management charge is 1.35%. The mortality charge will depend on the age of the policyholder.

Mint Money take

The costs are high so you need to have a long-term horizon in this plan. To understand how the costs bite, let’s take a 35-year-old who buys this Ulip for his one-year child for 17 years at an annual premium of Rs1 lakh. Assume he’s opted for the equity fund. The minimum sum assured is Rs17.85 lakh. Assuming the fund grows at 10%, the internal rate of return at the end of 17 years is 7.36%. Reduce the term to 10 years and it returns 6.36%.

Ideally, buy it when your child is under five years of age.

—Deepti Bhaskaran