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Nath Balakrishnan

TO CASH in on the growing popularity of unit-linked insurance schemes, ICICI Prudential has launched the unit-linked variant of its regular policy for children, SmartKid.

How the plan works

Annual contributions made are deployed in one of three schemes that the policyholder chooses: Maximiser, which has a skew towards equities; Protector, which is biased towards debt; and Balancer, a blend of the Maximiser and Protector.

Withdrawals can be made after five policy years; a total of five withdrawals can be made over the policy term. The withdrawal amount is a percentage of the accumulated value — the value of the units at the NAV prevailing at the time of withdrawal. On the policy's maturity, the remaining value of the units can be taken as maturity benefits.

Death benefits

On the death of the parent, the sum assured is paid out immediately; payment of all future premiums is waived and the policy benefits remain in force. Withdrawals can still be made, which ensures that the child's needs are not jeopardised by the parent's death.

Riders

Two riders can be appended for additional security: The Premium Waiver Rider, which waives future premium payments should the policyholder suffer total and permanent disability in an accident; and the Income Benefit Rider.

Top-ups

Additional funds can be brought into the policy, subject to a minimum of Rs 5,000 and a charge of 1 per cent.

Charges

Charges encompass policy charges (a percentage of premiums), annual administrative charges and well as annual investment charges, which are a function of the scheme one chooses to invest in. One free switch between schemes is allowed every year.

Suitability

Recently, such market-linked plans have generated above-market returns for the investors. However, settling for a lower sum assured under the plan and complementing it with a pure term plan would be a better option. The reason: Mortality expenses under this plan are on a one-year renewable basis. This means that with progressing age, mortality charges rise concomitantly. A lower sum assured under the plan also leaves a larger amount to be deployed in market instruments which could lead to a higher corpus on maturity.

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