Conventional Child or Term plus SIP for 15 Years Tenure?
Good financial planning is the secret of a successful family when it comes to wealth management for taking care of every major financial need of each of the family members. Life insurance plays a major role as a financial instrument that protects the family of insured party in case of untimely demise of the policy holder. With time the term insurance has evolved a lot and many variant products are available to customize different needs of the people.
Conventional Child Plan
This gives the policy holder the opportunity to include the child in the term plan taken by him/her. Insurers offer child plans to the policy holders for the welfare of their children in case of their untimely death. For Example, Mr. Ravi has taken a child include from the insurance company where his minor daughter Kiran was included, Kiran is currently 5 years old. The child plan does not insure the life of Kiran but in case of the untimely death of Ravi, The insurance company will provide the necessary future support for Kiran based on the Child plan purchased by Mr. Ravi. The plan is for Ravi where the detail of Kiran is mentioned as the future beneficiary.
Certain features of Child Plan include:
- Policy Term, Premium Amount and Maturity Amount – Policy term should be determined based on when the child requires the benefit of the plan. In case of Kiran, who is currently 5 years old, a 15 year term will enable her for the benefits when she attains 20 years of age. Premium amount is calculated keeping the maturity amount in mind
- Riders, Benefits of the plan – Certain add on are imperative like the Waiver of Premium that means during the tenure of the child plan if the policy holder (parent usually) dies, the future premiums that were payable by the policy holder will be waived though the benefits of the policy as it was mentioned in the plan will remain unchanged. This will benefit the child of the insured for the future. Some other optional but important benefits are: Accidental Death or Disability Benefit, Critical Illness benefit
- Partial Withdrawal – Many times rather than waiting for the maturity, many parents withdraw partial amounts at different points based on the requirement for the child
Term plus SIP
This is the financial instrument where the customers get the benefits of both life insurance coverage as well as the investment benefits. Let us consider the case of Mr.Rishi who is working at a MNC and want to have investment that will give return in future as well as serves a life coverage. There are similar instruments offered by different insurers, and Mr. Rishi is considering the following after some market research based on his requirement, affordability and eligibility:
- The Policy term will be 15 years
- The policy should give life coverage plus financial income
- Premium payment term and Policy term will be same
- Terminal Bonus and vested reversionary bonus will be paid lump sum at maturity
- Guaranteed pay-outs will be at 11% rate of sum assured and this will be paid annually and for next 15 years after the maturity of the policy (Note: There could be the option to get the lump sum maturity amount in one shot. that is the sum total of: 110% of basic sum assured, Terminal Bonus and Vested Reversionary Bonuses)
The policy could be customised using different Riders as required like Critical Care, Accidental death Benefits, Permanent Disability Benefit etc.
Rishi’s selected Policy Product Resembles the following:
| Policy Term | Minimum Age of Entry | Maximum Age of Entry |
| 7 years | 11 | 58 |
| 12 years | 8 | 53 |
| 15 years | 8 | 50 |
| Age At Maturity | Minimum: 18 years | Maximum: 65 years |
| Sum Assured | Minimum: ?100,000 | Maximum: No limit |
| Premium Frequency | Monthly/Quarterly/Half Yearly/Yearly | |
| Pay out Period | 15 years | |
| Pay out frequency | Yearly | |
In case of Premature Death during the term of Policy, the nominee receives the higher of:
- a) 105% of all the premiums paid by insured until death and
- b) Sum Assured on death + Vested Simple Reversionary Bonuses + Terminal bonus, if any
Comparison of Conventional Child Plan and Term plus SIP
While both the plans have the life coverage as common feature, the other benefits are specific to the individual requirement. If Kid’s education and future is priority then Child Plan is preferred and could be done lump sum or partial withdrawal of maturity amount as needed. Whereas, for a preference of pay-out for prolonged period, Term plus SIP is the right option.
