Child plans offered by insurers usually allow you to plan for your children’s education needs in the future while also providing a risk cover on your life. If you, the parent, unexpectedly pass away, the child’s future is secured by way of the proceeds from the claim.

But LIC’s new children’s money-back plan is quite different. This plan covers the life of your child. In the untoward (and unlikely) event of the child’s death, the parent gets the sum assured. If the child survives, you get a predefined lumpsum.

Plan features This plan is available for children of the age up to 12 years and has an insurance as well as savings component. The minimum sum assured is ₹1 lakh. By design, this policy will mature when the child turns 25. For instance, if the child is 10 years old when you take the policy, the insurance term will be 15 years. In case of death of the child during the policy term, the sum assured — either 10 times the annual premium, or 105 per cent of premiums paid, whichever is higher — will be given to you, the parent, along with any bonus.

The company guarantees two benefits for the child on surviving the policy period. One, your child will receive 20 per cent of the sum assured on the completion of 18 years, 20 years and 22 years. Two, a maturity benefit equal to 40 per cent of the sum assured plus any reversionary and final bonus declared by LIC is guaranteed on maturity of the plan. The bonuses depend on LIC’s discretion and the reversionary bonus will accumulate only a simple interest basis.

Now, it is quite unlikely that anyone would like to claim the insurance benefits on the death of one’s child. But what if an untoward incident happens to you?

Well, this policy does offer a ‘premium waiver benefit’ in case of the proposer’s death during the policy term.

However, this is a rider, requiring you to shell out additional premium. The rider is only given to parents between the age of 18 to 55 years. Death of the proposer within the first 12 months of the policy issuance or within 12 months of policy renewal will not entitle one to the benefit.

Insurance is usually recommended only for earning members of a family. In any case, hardly any parent would like to ascribe a monetary value to the life of their child.

Our take To add to this, the features of the plan are unfriendly to the investor. One, most insurance companies give a premium waiver benefit on children’s plans so that the child can continue to enjoy plan benefits even if an untoward event happens to the parent. But this scheme offers life cover for the child and requires you to pay additional premium for your own life cover.

Two, availing of the rider carries conditions too. The plan specifies that if the child is below eight years, there will be a waiting period for the death cover.

Further, the plan’s returns are also quite low.

The benefit illustration estimates the net return at maturity at about four per cent, assuming a gross return of 8 per cent.

If you have a 10- or 15-year term in mind, a combination of a pure term cover for the parent plus an investment in balanced funds will be a much better way to build wealth for your child. If you are a conservative parent with a girl child, you may also look at the Sukanya Samriddhi scheme or else consider the PPF.

Related Topics