Product Review. A flexible cover for your child

Max Life has recently launched a non-linked participating child insurance plan. The policy covers the life of the proposer and acts as a savings plan for the child’s future by offering maturity benefits. The minimum age of entry for the policy holder is 21 years and the maximum age is 45 years. The term available is 13-21 years. One can choose to pay the premium for a period of eight years. Or for a period which is three years less than the chosen policy term.

There is no maximum limit on the sum assured offered under this policy, though in general, the maximum sum insured in all cases is determined based on the underwriting policy of the company. The minimum annual premium is ₹40,000, in case you choose an eight-year term and ₹20,000 for others.

Like most other child plans, if the proposer passes away during the policy period, Max Life will pay the sum assured to the nominee immediately; it will also waive off all future premiums due. The sum assured will be 11 times the annualised premium or 105 per cent of the premiums paid till then, whichever is higher. The policy will continue to be in force for the child.

The policy benefit is paid out as bonus, including terminal bonus for eligible policy holders (referred under the policy as maturity benefit) and as moneyback in the final years. Moneyback is paid out in the last four years of the policy. Each payment will be equivalent to 25 per cent of the sum assured under the policy.

So, like all other child plans, under this policy too, if the proposer survives the term of the policy, the benefit will be limited to a sum equivalent to the sum assured plus bonuses, if any. It is only on an unfortunate event of the proposer passing away before the maturity of the policy, that the sum assured will be paid twice — once to the nominee at the time of the death of the insured, and then to the child at the end of the policy, in four instalments in the last four years.

What differentiates this policy from a few other similar plans in the market is that it offers a lot of flexibility. On death of the life insured, the nominee can choose to receive the sum assured as lumpsum or in instalments. Further, the bonuses declared can be taken in cash or offset against the future premiums. It can otherwise be left to accrue as ‘paid-up additions’ and can be taken at the time of maturity of the policy. By allowing a term of 13 to 21 years, the plan also gives the flexibility to decide the milestone years of your child. You can have the benefit payments start at the age of 16, 18 or 21 — when the child either enters high school or college or completes his/her basic graduation. In SBI Life Insurance’s child plan, for instance, the benefit payouts compulsorily start from the age of 18.

In the Max Life policy, you can also have the flexibility to reschedule the money back until three months before the first payment. You can either defer it or ask for it to be advanced for a discount.

The policy also offers a few interesting riders. One is that it offers to waive off premium payments on the proposer being diagnosed with a critical illness. There is also a rider that provides a lumpsum payment in case of death or dismemberment due to an accident. The plan offers ‘Term Plus’ rider too that provides additional lumpsum benefit on death of the policyholder. Not many players in the child plan market offer riders with their policy. However, do remember that these riders come only at an extra cost.

The highlight of a child plan is that it waives future premiums on the death of the policy holder and doesn’t kill the ambitions of the child. Max Life’s Future Genius Education plan is a tad more attractive than similar plans in the market, given its flexible features.

This policy is definitely a better proposition compared to LIC’s new children’s money back policy which covers the life of child and makes payment to the policyholder if the child passes away! Costs under this plan are relatively low, but being a traditional plan, the internal rate of return works out to a little over 5 per cent only. Other child plans in the market have an IRR of 4-4.5 per cent.

However, if you are not completely averse to risk, investing in a term plan for life cover and the balance through a combination of equity/balanced mutual funds and other debt instruments such as PPF, Sukanya Samriddhi Scheme (for girl child ) may bring higher returns, and hence a bigger corpus to meet the child’s future needs.

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