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Not just a risk cover for kids

September 16, 2003 14:25 IST

It's no longer just a case of buying a risk cover.

Plans today allow policyholders to decide where premiums paid are to be invested in keeping with individual's risk appetite.

At the same time, with uncertainty looming large on how long one can hold up a job in the wake of pink slips, and financial markets being topsy-turvy as they are, customers are also looking for flexibility and security.

Now such flexibility has been extended to plans targeted at children.

Anoushka Rao's parents wanted to secure their child's future, and were looking for a child plan that offers flexibility in terms of payment frequency and payout structure.

With both parents being clued-in to the market, they wanted a scheme where investments would give the highest possible returns without sacrificing the principle.

They settled for Birla Sun Life Insurance innovative 'My Child' cover that offers the best of two worlds: investment in stocks and bonds with the assurity of minimum returns and guarantee of the principle.

Most children policies fail to give any investment choices, and are based on  traditional endowment or money-back plans, which do not necessarily address the possibility of higher returns through stock market investments.

Anoushka's father being a stock broker, and her mother a financial analyst with a leading merchant banker, the parents were keen that their daughter's future also capitalised on the bull run. They  thus opted for the 'enhancer' fund, which allows for investment in the stock market up to 35 per cent.

The bull run in the stock market has been reflected in the net asset value of many mutual fund equity schemes. Interest rates have been moving southwards in the last couple of years, with no signs of any hardening.

In contrast, the stock market rally has attracted retail investors to make money while the sun shines.  Most life insurance companies offer unit-linked plans allowing policyholders to decide their choice of investments in accordance with a risk return profile best suited to the situation.

Even should the stock market take a hit, Anoushka's future is secured.

Birla Sun Life ensures a three per cent guaranteed return annually. This means Anoushka's Rs 3 lakh cover costs her parents Rs 16,464 annually for the next 20 years, but there is a minimum guaranteed sum of Rs 368,000 at the end of the term. This exists even should the markets crash and principle get partly wiped out.

Birla Sun Life's My Child  plan - a choice of an endowment or money-back product -- allows for customisation of withdrawals when these are needed the most.

There are various milestones in the child's life where money plays an important role - education, higher studies, illnesses, business and may be even marriage.

Most other children plans have a pre-determined withdrawal period that does not allow for flexibility. Here however, Anoushkar's parents can decide when they wish to withdraw funds from the plan.

If funds are not required, they can be reinvested into the plan to earn higher returns.

While Birla Sun Life allows flexibility in withdrawals, HDFC Standard Life takes a step further giving the option of deciding the date of the maturity period instead of a fixed term.

Anoushkar's parents are doubtful of how long they might be able to continue working. Her dad has a family history of heart ailments.

Her mother feels that after a few years, she might not like to continue working as she would like to help her child in her studies.

As a result, her parents have opted for a shorter premium paying period of nine years, and have paid extra for the waiver of premium rider by paying eight per cent additional premium annually.

Since both the parents have already taken out term life policies on their own lives, they decided not to opt for term rider.

Most existing children policies have waiver of premium in-built as in the case of Allianz Bajaj, HDFC Standard Life, ING Vysya, ICICI Prudential, Life Insurance Corporation's Jeevan Sukanya, Max New York Life, and Tata AIG Life.

This ensures that the future of the child as the future premiums are paid by the insurance company should the parent die before paying all the premiums.

At the same time, it is possible to take a loan against the policy if needs be. Met Life allows a loan amount of 90 per cent of the guaranteed sum assured after a three-year premium paying term.

Similarly, ING Vysya Life and Om Kotak Mahindra's Child Advantage Plan offer loan against the policy after three years. LIC and Tata AIG Life do not encourage any loans against these children plans.

In the event that parents have more than one kid, it is not a bad idea to opt for ICICI Prudential Life's Smart Kid plan.

This policy can be transferred to another child if the first beneficiary were to expire.

Most child plans have a three year vesting period, which does not allow for any accumulation of sum assured, and just the premium paid are returned to the parents on the demise of the child.

Insurance is no longer just a blanket security against the possibility of death. Today, customers are demanding more. They want savings as well as protection. What's more, many look for flexibility and liquidity in their choice of products.

Entry of private sector players into the life insurance arena has assured a variety of products that offer flexibility.

It is up to the individual to identify what is the best possible product in the market to suit his needs.

Freny Patel