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How to plan for your child's future
S Bridget Leena in New Delhi
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September 27, 2005 10:54 IST

Parents want a secure future for their children. But the key to that lies in their finding out the right investment option, which can ensure that - the protection of their children's future.

The children insurance policies - offered by insurance companies - apparently with more attractive features easily seem to be better than other investment options.

But importantly, in these policies, is the full premium waived and the child's education expenditure taken care of, even in the eventuality of death of the father, who opts for the policy for his child's future cover?

Easy loans for your child's MBA

Rahul Sinha, vice-president (marketing), Kotak Mahindra Old Mutual Life Insurance, says children insurance is the fastest growing segment of the insurance company's portfolio surpassing even the pension segment.

The life insurance behemoth, Life Insurance Corporation of India and other new entrant players such as ICICI [Get Quote] Prudential, HDFC [Get Quote] Standard Life, Bajaj Allainz Life Insurance and Max New York Life have more than three insurance policies, dedicated to children, each.

Sinha points out that it is mainly owing to escalating cost of higher and overseas education, and, despite that, parents' ever growing desire of providing quality education to their children, which is driving the growth of the children insurance portfolio. Second factor is the expenditure to be incurred in the marriage of the child in future.

Sujit Ganguli, head - marketing, ICICI Prudential Life Insurance, says on Monday acquiring an engineering or an MBBS degree costs about Rs 250,000, and taking into account 10 per cent inflation, it will rise about three times to a minimum of Rs 750,000 in another 10-11 years' time.

An MBA programme, on the other hand, costs about Rs 300,000, today. This might multiply four times to Rs 12 lakh (Rs 1.2 million) in the next 15 years or so.

How to secure your child's future

Based on such assumptions, parents should determine the sum assured under the policy, and, of course, also make adjustments in other savings that they might have towards the same goal, adds Ganguli.

Sinha says a children insurance policy is often debated on such lines like: as the life of a child is insured, in the unfortunate eventuality of the child's death his/her parent will want to get the benefits. So, on the contrary, it is the life of the father (usually) of the child, which is insured under the children insurance policy.

A child can continue his/her higher education uninterrupted even if his/her father expires - under whatever may be the financial condition of the family following the father's death.

The child can grow and finally build a very good career, even when his/her father is not alive. However, if the policyholder commits suicide within a year of his starting the policy, the policy becomes nullified, Sinha explains.

The premium for the traditional children product is determined based on the sum assured and age of the parent, who is to be the policyholder. It offers payouts at fixed milestones. The policy is flexible, allowing the parent to specify the age of the child at which the policy would mature.

One of the policies, the unit-link policy, allows the parent to determine the level of premium he/she wants to pay and to decide when he/she wants to withdraw funds. The parent can choose from various investing options offered by the insurance company depending upon his/her risk appetite.

ICICI SmartKid ULIP Regular Premium plan, for instance, has two variations. While one offers premium holiday after five years, the other offers an automatic cover continuance.

The policyholder can decide the sum assured, and the policy demands a minimum premium of Rs 18,000 per annum. It allows a maximum of five withdrawals, up to 20 per cent of the accumulated value in the first withdrawal, up to 25 per cent in the second withdrawal, 5 per cent incrementals on consecutive withdrawals and up to 40 per cent of the accumulated value in the fifth withdrawal.

The other SmartKid ULIP single premium plan requires a one-time premium payment, which can then be topped up as and when the funds are made available. Sum assured is five times the annual premium, where minimum premium is Rs 50,000 annually.

Max New York Life Insurance's Stepping Stones is a money back policy available for parents aged between 21 and 60 years. The plan covers the child from 11 to 26 years.

The unique features of this product: it offers an additional 30 per cent of the sum assured on maturity and allows the customer the flexibility to choose the tenure of the policy - from 11 years to 26 years - depending on the child's age.

Stepping Stones can be bought with five optional riders - the personal accident benefit rider, the term rider, the dread disease rider, the waiver of premium rider and the renewable convertible term rider.

Any parent aged between 20 and 60 years, with children in the age group of 0 to 15 years (0-12 years for traditional policy) can avail of this policy.

In the event of the parent's death, full premium on the insurance is waived and the sum assured will be given at the time of child pursuing higher education or, depending on the policy, if it has the flexibility to withdraw at specific intervals.

The minimum sum insured to cover a child's higher education like BE/MBBS/ MBA is in the range of Rs 10 lakh to Rs 15 lakh (keeping in view 10 years from now).

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