A guide to buying Ulips for your kids

Sure, we all want to make our children's future secure. But how we go about it differs. While some macro-vision people use less plastic and water so that the earth survives the kids, the rest of us try and buy financial security.

The way we do it again differs. Some buy plots of land, some invest in gold, yet others in shares or funds. A popular way has been to buy an insurance policy.

One thing that works in the favour of a child plan using an insurance policy is that the money is clearly earmarked for the use of the child at a target date for a particular purpose, be it education or marriage.

In case of the parent's death, the sum assured is immediately paid to the family and the insurer pays the remaining premiums on behalf of the parent. This way, the child's needs are taken care of in case of the parent's death. Moreover, the child gets another lump sum at the desired age.
Sure, a high-value term plan can take care of the child's future, but there is the real danger of the money getting used for some other purpose in the hands of an inefficient nominee of the policy.

How is it different

A kids' plan costs more than any other alternate approach, but does assure you of money in the future for your child, even if you are not there to take care of the premiums along the way.
For example, an endowment life insurance plan would cost about Rs 23,500 for a sum assured of Rs 5 lakh for a 30-year-old over a term of 20 years. In contrast, a child insurance plan for the same age, term and sum assured, will cost about Rs 24,000.

In both cases, the sum assured is paid on the death of the policyholder, but in a child plan the policy wouldn't terminate after that.

There can be two variants of children's plansendowment plan and unit-linked plan. In the first variant, staggered payments are made to your child at different ages.

For example, 20 per cent is paid when he turns 21, 20 per cent when he is 24 and the remaining 60 per cent when the policy matures. In the second variant, one may choose to get a lump sum amount at the desired age.

In the past year, we have written several times on what kind of child plans there are in the market and who should buy them. The story in this issue will talk about how you should choose a kids' plan.

Which one to buy

If you are sure you need a kids' plan, the obvious question is which one to buy. There are numerous plans in the market and the number is steadily growing.

With kids' plans constituting the maximum number of the total plans sold, they are obviously one of the best sellers for the insurance companies. So, expect more in the market soon.

Insurance: Ask the right questions

Insurance: Ask the right questions

As we enter the peak tax-saving season, you will notice an increase in advertisements related to tax-planning products. Expect an escalation in the noise surrounding tax-saving products like life insurance and mutual funds. These advertisements will almost certainly be followed up by persistent calls from telemarketers, not to mention personal visits from your friendly neighbourhood insurance agent. So as an investor you are likely to be very busy over the next few months dealing with people who will be going all out to make you buy what fetches them the highest commission, in this case life insurance.
Being financial planners, we have observed that salaried individuals are primarily concerned, more than anything else, about tying up their tax-planning in time to meet the deadline set by the employers. They don't dwell too much on the instruments that must form part of their tax-saving kitty; their objective is getting the tax-planning out of the way as soon as possible so that they can get on with their work as usual.
While we empathise with the salaried individual's focus on his work, we believe there is a case to treat tax-planning as more than a mere distraction. For one, it's the investor's hard-earned money; so treating it like someone else's business is not a very healthy attitude. Since it's his money (or your money if you happen to be that salaried individual) it's only natural to treat the money as sacred and ask a lot of questions before taking an investment/insurance decision. If they find themselves constrained for time, then they must begin the tax-planning exercise a little earlier, which is what we have been advocating to our clients for several years now.
Since a lot of noise that you will be hearing over the next few months will revolve around life insurance, particularly of the now-very-familiar ULIPs (unit linked insurance plans) variety, you must be armed with the right kind of background knowledge. This will help you pose the right questions to the telemarketer and/or counter the insurance agent's sales pitch.