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December 24, 1999


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Wanted: Education and marriage insurers

Murali Iyer

As the new Millenium approaches, one thing looks painfully clear to us. India is all set to overtake China as the most populous country in the world. Illiteracy, poverty, lack of use of proper contraceptives, are some of the reasons being bandied about. But, an important reason for this alarming pace of growth in population in the last fifty years is the fall in infant mortality rate, which is currently over 360 million or 36 per cent of the total Indian population.

Where does insurance come in here.? As per a survey, there are an estimated 100 million insurable children in India. But so far, only three million children's policies have been taken out. This is mainly due to the fact that there is a distinct lack of suitable products in the market. For instance, there is still no insurance product to finance school education or weddings, though both (especially the latter) require heavy expenditure.

Innovation of products and their effective marketing will certainly help insurance companies to tap the huge potential that lies in children's assurance. As the market for insurance gets thrown open to foreign and private sector players from India, the wannabe insurers can back a surefire winner in this segment.

Education and marriage are two major concerns of parents for their offsprings, besides health. But we all know that higher education has become quite costly, and has become a mirage for a very large portion of our population. Donations are definitely impossible for the vast majority, i.e. lower income and middle class people. But the latter can afford to give quality education to their wards if they set aside a small portion of their monthly income for this purpose.

Their saviour in this endeavour would be one of the eight insurance policies brought out by the Life Insurance Corporation of India (LIC). While parents may pick and choose their suitable policies, of the eight, "Children's Money Back Policy" and "Jeevan Kishor" have been very successful.

Children's Money Back Policy helps finance the higher education of children between 18 and 26 years. It also provides for a lumpsum payment when the offspring attains the age of 26. This lumpsum payment helps in achieving a comfortable start to their professional career. Purchase of this policy could be done when the child is 10 years or less, while the risk cover on the child's life begins when he / she attains the age of seven or one year after the policy is purchased, whichever is later.

Children's Money Back Policy enjoys a tax rebate under Section 88 of the Income Tax Act. So, 20 per cent of the premia paid (with an annual ceiling of Rs. 14,000) is deductible from the tax payable by the proposer, i.e. the parent or guradian or whosoever that buys the policy. The proceeds of the policy also enjoy income tax exemption. Thus, the maximum amount that can be assured under this scheme has been capped at Rs. 5 lakh.

When the child turns 18, the payment of the premium ceases and the benefits start to flow. The first instalment of 20 per cent of the sum assured is paid on attaining the age of 18, to finance his/her higher education. Another 20 per cent is paid when he/she reaches the age of 20, followed by two tranches of 30 per cent each at the age of 22 and 24. When the beneficiary reaches the age of 26, the guaranteed bonus (of Rs. 80 per Rs. 1,000 of the sum assured every year) and the loyalty bonus is paid to him/her.

For example, my sister has recently given birth to a baby girl. Assume that my sister and brother-in-law take out a Rs. 2 lakh policy in the name of my newly born niece. They will have to pay an annual premium of Rs. 10,610, i.e. Rs. 884.20 per month. For the total of Rs. 190,980 that they would have to pay over 18 years, they will also earn a tax rebate of Rs. 38,196. This would reduce the actual outgo to Rs. 152,784. My niece would get Rs. 40,000 when she reaches 18, another Rs. 40,000 when she attains the age of 20, Rs. 60,000 at 22 and another Rs. 60,000 on the 24th birthday. But that's not all. She would also get a lumpsum of Rs. 416,000 as accrued guaranteed bonus and an estimated Rs. 80,000 as loyalty bonus.

This policy's value gets further enhanced when the proposer also buys risk cover for his / her life by paying a little extra premium. So, if the proposer dies during the policy term before the child turns 18, the remaining premia is waived. The proposer, therefore, is assured that the policy will be in force even in the veent of his / her unexpected death, and the child's career will proceed as planned.

Yet another very popular policy, for children, from LIC is the Jeevan Kishor plan. This policy has a different objective altogether. It is designed to give the child an endowment assurance policy at a cheaper rate of premium. Jeevan Kishor can be purchased for children up to the age of 12 by their parents. Here too, the maximum amount that can be invested as sum assured is restricted to Rs. 5 lakhs. Again, tax benefits are available under Section 88 of the Income Tax Act. On maturity of the policy, the sum assured is payable alongwith bonus and terminal bonus. If the insured person dies, the same benefits are availabkle to the nominee.

All parents wish to see their children well-educated and well-settled. Ensuring that one's ward is financially comfortable is now easy and affordable. But unfortunately, a lot of parents are still not aware of these insurance policies, as can be gleaned from the fact that a lot of children are not insured in India. With the inevitable entry of foreign insurance companies in association with domestic private sector players within the industry, hopefully, better marketing would result. And then, insuring your child's future will be more like child's play.

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