Sunday, April 6, 2014
ULIPs to secure your child’s future
Both Aegon Religare and Max Life promise protection with regular money-back to your family in case you die. But which is better?
Looking for an insurance plan that helps secure your obligation toward your child’s future? Well, Aegon Religare and Max Life recently re-launched their ULIPs targeted at children’s education − Rising Star Insurance and Shiksha Plus Super - after tweaking them for new regulatory requirements.
Parents up to the age of 48 years can buy the policy with Aegon Religare and those up to 50 years can buy the Max Life policy. In the event of death, you get a minimum sum assured of 10 times the annual premium you pay under both policies. In case of survival, you receive the value of your holdings. Assuming an eight per cent gross return, our calculation shows that Aegon Religare’s plan will generate a 5.5 per cent annual return in 15 years (based on the illustration provided by the company). The comparable return for Max Life’s plan is 5.18 per cent.
On death of the insured, both insurers pay the sum assured and also waive remaining premiums. In addition, both these plans give an ‘income benefit’.
In Max Life’s Shiksha Plus Super, this ‘income’ is equal to one-tenth of the sum assured and will be given to the family every year following the policyholder’s death. The ‘income’ payments may flow in for any where between three and 10 years, depending on how long you paid the premium. In Aegon Religare’s Rising Star Insurance plan, the family of the policyholder will get a sum equal to the annual premium he paid from the time of death of the policyholder to the end of the policy term.
Both the plans offer equity and debt choices for investment.
Be it 10 per cent of sum assured or the full annual premium, the income benefit under both plans will be the same in case a claim is lodged in the first 10 years of the policy's tenure.
For example, if an individual has made five annual premium payments of ₹75,000, a death claim at the end of the fifth year will translate into the family getting a sum assured of ₹7,50,000 under both plans.
In the case of Max, where the income benefit is 10 per cent of the sum assured, the amount the nominee will receive every year after death of the insured will work out to ₹75,000 (10 per cent of ₹7.5 lakh sum assured) and in the case of Aegon, the income will be ₹75,000. But if the claim is after 10 years, say in the 12th year, Max’s policy will give higher income as the benefit is tied to the value of sum assured.
After 10 years, the sum assured on the policy becomes 105 per cent of premiums paid. IRDA mandates that insurer must offer a sum assured not less than 105 per cent of all premiums paid when there is a claim. So in the case of the Max ULIP, the family stands to earn a higher income. In Aegon’s policy, the income benefit remains constant. Also remember that in Aegon Religare’s plan, the fund will mature only when the child is 25 years old and by then, he/she would have already completed a master’s degree (there is an option to discontinue and withdraw the funds if needed earlier). In Max Life’s plan, you can choose the term of the plan in such a way that the child gets the money when she turns 18 or 20.
You are free to choose a policy term of 10 years or between 15 and 25 years here.
Overall, Max Life’s policy may give your family slightly higher income on your death, but Aegon’s promises better benefits on survival.
The advantage of a child plan over normal endowment plans is that on death of the life insured (parent), the future premiums are waived, but the policy is kept alive. The objective is to provide financial security to the child in your absence. The insurer funds the premium from his pocket and at the end of the policy term, the child receives the maturity proceeds. At what age the child should receive the money can be decided by the parent. Generally, these policies come with a term of 15-20 years. But these child ULIPs are a costly investment proposition because the insurer has added on a premium waiver and regular cash flows, which increase the cost of these plans.
Keep in mind that a child ULIP is not the only way to secure your child’s future. Plain vanilla ULIPs or balanced mutual funds may do equally well.
(This article was published on April 6, 2014)