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Nath Balakrishnan

INSURANCE plans for children are fast becoming popular, as they not only offer payouts that can be timed to coincide with certain milestones in the child's life, but also financial security if the parent dies. A look at SmartKid of ICICI Pru:

Features

Parents in the 20-60 age group can take this plan for children below 12. The policy maturity can be fixed between the child's 22nd and 25th year. The payout can be structured in two ways. Let us assume a policy with an 18-year tenure.

A percentage of the sum assured will be received in the 11th, 13th, 16th and 18th years. Under this scheme, the total amount received will be 100 per cent of the sum assured, plus guaranteed additions and company declared bonuses (non-guaranteed).

Phased payouts are made over the last five years leading to the term maturity. The total payout, in this case, adds up to 105 per cent of the sum assured, plus the guaranteed additions and the bonuses.

Guaranteed additions are made at 3.5 per cent on the sum assured (on a compounded basis) for the first four policy years. Subsequently, bonuses are a function of the company's investment performance.

Death benefit

In this policy, it is the parent who is the life insured. In case (s)he dies, the sum assured under the plan is paid out immediately, the payment of future premium waived and payouts as envisaged originally will be made. Should the child die, either the policy can continue with a changed beneficiary (a different child) or the parent can take the policy's cash value.

Riders

Two riders can be appended to the basic plan: The Income Benefit Rider and the Accident and Disability Benefit Rider (ADBR). On the death of the parent, the child stands to receive 10 per cent of the sum assured under the rider till the policy's maturity. On death by accident of the parent, the sum assured under the ADBR is paid lumpsum.

Suitability

With escalating costs, a plan such as this will make it easier to meet education expenses. Moreover, by structuring the payouts so as to coincide with milestones in the child's life — such as passing out of school/college and marriage — the plan also incorporates flexibility.

The security that the child's financial well-being will not be affected even if the parent dies is reason enough to consider such a plan.

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