Nothing Sentimental About This

Insurance policies for children are another variation of money-back policies. So, how do you go about zeroing in on a policy that would suit your and your child’s requirements, without getting too emotional in the process? Najaf Ishrati shows the way

Published December 21, 2006,
ET Personal Finance, Mumbai.


MONEY back insurance is another tool for providing protection along with the saving or investment function. Once the policy has been made out, the insured continues paying a periodical premium to the insurer and gets a specified life cover in return. The insurer also pledges to return the premiums, along with bonuses or investment returns that may accrue, to the policyholder on prespecified dates or periods before or after the maturity of the policy scheme. Thus, the insured gets risk cover in case of death, and a regular source of funds upon survival.
A variation of the money back policy is the children’s policy, the difference being that the policy would mature not on the retirement of the parent, but on the coming of age of the child. The policyholder can decide when he wants his monies back, and could tie it to the educational, entrepreneurial, marriage needs etc., of the child. Death of the parent during the tenure would entitle the child to the sum assured, and in a few cases, also to the maturity benefits.
It is within the children’s plans that some variations can be seen. While most companies insure the life of either of the parents, three companies insure the child’s life. Although insuring the non-earning member and making the bread-winner the beneficiary defies logic, it makes no difference to the future of the child. If the child lives, he/she is assured of the maturity value, if not, then, the question of education or marriage does not arise. Such schemes have waiver of premium riders inbuilt into them, and if the parents get incapacitated, the scheme is treated as being paid as normal until the maturity benefits accrue.
So, if it makes no difference, why are such schemes on offer? There is, however, one major beneficiary under this type of policy, namely the insurance company. For roughly the same amount of premium, it has cut its risk of the death of an adult, to that of the death of a minor. Or, in other words, it is charging the premium rate of an adult, on the life of a child.
Insurance policies for children have a lot in common. In fact, when it comes to premium, there is very little to differentiate between schemes. The premium for a father aged 35, for a term of 20 years on a sum assured of Rs 5 lakh ranges between Rs 22,820 to Rs 33,410. Most of the premiums hover around the Rs 27,500-mark. The difference between the premiums could indicate the little bit extra that the scheme offers. For instance, HDFC Standard Life has three schemes, maturity benefit, accelerated benefit and double benefit plans. Most companies offer this by one name or the other, whereby on the death of the insured in the first case, the remaining premiums are waived and cover is provided on maturity.
In the second case, maturity is payable immediately upon death and the policy would lapse. In the double-benefit case, the sum assured would be paid immediately upon the death of the insured, premiums would be waived off and maturity benefits originally promised would also accrue when the time comes.
Sums can be assured from a minimum of Rs 25,000 to a maximum based on the insured’s underwriting. The minimum entry age for parents is 18 years while the maximum is 60. There is quite a range available in terms of the tenure of the policy. The least required period is five years for of AMP Sanmar while Max NY offers the maximum term of 26 years. The minimum annual premiums required start at Rs 1,800 with HDFC Standard Life for inuring a parent and Rs 1,500 for covering a child.
You should also look out for special deals. For instance, the Max NY Stepping Stones plan offers an extra guaranteed 30% of the sum assured on the last maturity payment. Met Life offers guaranteed additions of Rs 50 on every Rs 1,000 and then a certain percentage on these guaranteed additions.
Of the companies that cover the lives of children, the inbuilt premium waiver rider for the parent comes bundled with the policy, except in the case of Tata AIG, where it has to be purchased separately.
It may appear that children’s plans may not have much between them, but investment, if need be, must made in them after careful consideration and not goaded into it by either by the agent, or the sentimentality of the issue.