Continuing further from our previous article ICICI Child Plans - Savings Based Plans
The next child plan on the list is from ICICI Pru life and is called ICICI Pru Smart Kid - Regular Premium. This is one of the plans for which ad campaigns are being run actively.
One can start investing in this plan with as little as 700 Rs. per month or Rs. 8400 per annum. This offers a mix of insurance as well as returns and claims to provide the following benefits:
- Guaranteed Protection (kind of insurance): Lump sum payment of Sum Assured plus payment of future premiums by the Company in the unfortunate event of death of the parent (Life Assured)
- Development Allowance : Under this benefit, a specified amount is paid to the child every year, in the unfortunate event of death of the parent, if Income Benefit Rider is opted for
- Facility to provide money for key educational expense of the child
- Protection against Accident and Disability : Additional protection against accident and disability is provided with the help of a rider at a marginal extra cost
- Tax Benefits : On premiums paid and benefits received, as per prevailing tax laws
However, please note that all these benefits come at a cost. Say development benefit will be given only if the benefit rider is opted for. Accident Protection can be claimed only if you take a rider which comes at an extra cost. So overall, the more benefits you expect, the more you pay.
Review of ICICI Children Plans
Apart from the insurance part, it claims to offer something called as
Guaranteed educational benefit with two options to choose from.
Option 1 is that you take payouts at regular times - say first payout 15 years of age, second at 17 years, third at 20 years and last at 22 years. The respective amounts will be 20%, 25%, 25% and 30% of the sum assured.
Option 2 is receive 5 payments in last 5 years of the policy with 20% amount of sum assured each year.
The problem is that everything is tied to Sum Assured. So obviously as an investor, you will wish to have higher sum assured amount, but that will mean higher investment amounts.
Even if you are looking at taking other add-ons like the Income benefit rider or the development allowance, then they are also dependent of Sum Assured.
They come at further extra cost. So overall, you end up paying more.
There are some payouts mentioned about Guaranteed Additions and Vested Bonus, but no clear details are available other than Guaranteed Additions (3.5% on Sum
Assured for the first 4 years); & Vested Bonus based on the experience of the Company. Obviously this is at the discretion of the company.
On their website, I was unable to locate the details about where and how this money will be invested by the insurance company under the ICICI Pru Smart Kid - Regular Premium. If readers are aware of that please post it in the comments section and this article will be updated after due verification.
The next similar plan offered by the same ICICI Pru life insurance company is in the name of ICICI Pru SmartKid Premier and this is actually a ULIP i.e. Unit Linked Insurance Plan.
So here, you opt for a tenure of investment 5, 7 or 10 years. The insurance company will invest your money in one of the several funds of ICICI and your returns will actually depend upon how the underlying funds perform.
Since this is a ULIP, there will be charges deducted - allocation charge, policy admin charge and fund management charge, etc. Each fund will have its own charges and since this is a ULIP, there might be other charges as well.
On their website, there is only illustration of how an investment of say Rs. 18,000 will grow at 6% yield or 8% yield. I was unable to find clear details about what all charges will be applicable. True that it will depend upon the funds being selected by the insurance company, but as an investor I would like to know the charges upfront.
So in essence, this being a ULIP, you money will get invested in a variety of funds depending upon your choice of personalized portfolio strategy from as described as :
- Fixed Portfolio Strategy: Option to allocate your savings in the funds of your choice
- LifeCycle based Portfolio Strategy: A personalized portfolio strategy to create an ideal balance between equity and debt, based on your age
- Trigger Portfolio Strategy: A unique portfolio strategy to protect gains made in equity markets from any future equity market volatility while maintaining a pre-defined asset allocation.
The usual claims of insurance even after the demise of parents or policy-purchaser, loyalty additions, maturity benefits, etc. etc.
Overall, you give your money to the fund managers, charges will get deducted as per the selected choice of funds and other needs, returns will vary, insurance is assured in terms of payment of premiums, but then the final amount is not assured. It can go either way.
So ideally, if you are looking to buy a policy for certainty for your kids future, you need to take a call about which one to buy.
Are you OK to take a deep dive into the ICICI Pru SmartKid Premier where returns will vary depending upon the fund performance and charge deductions, OR are you fine with ICICI Pru Smart Kid - Regular Premium where everything is dependent on Sum Assured OR does the bank savings based "Child Education Plan" appeal to you more as it is safe?
The problem with all these fancy child plans is that they don't really explain where your money is going. You as an investor need to decide how much do you want. And the higher returns you expect, the higher amount of investment you make. It sounds good to mix insurance with investment, but that is not a good strategy. These policies and plans base everything on Sum Assured, meaning higher investments to be made upfront. With ULIP coming in picture, the charges take away significant portion of profits, with a lot of conditions and lock in periods. You also cannot withdraw your money early, if you need or else pay heavy penalty.
Overall, if you are OK to take risk in shares or equities, then SIP in an index based ETF is considered a safe bet over a long period of 10+ years. If you are not of equities type, then you can look at investing regularly in bonds and fixed deposits offered by numerous banks. Now with online banking, you can get Fixed deposits created in few clicks.
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