Life insurance Corporation (LIC) New Children’s Money Back (Plan No. 832): Should you Buy This?

A few days back a new plan was launched by LIC of India. This plan is called the New Children’s Money Back (Plan No. 832, UIN 512N296V01)

Plan Details:

Briefly the plan details are as follows:

·         This plan is only meant for children, provided the grand/parent proposes the insurance. The child can be between the ages of 0 to 12.

·         The minimum Sum Assured is 1 lakh and there is no maximum limit.

·         The duration of the policy is calculated as 25 minus Age at Entry.

·         At the policyholder age of 18, 20 and 22, 20% of the Sum Assured is returned as a “money-back” instalment. The balance is returned on Maturity (at policyholder age 25).

·         Simple reversionary bonus and a potential Final Additional Bonus is payable along with the Maturity Sum Assured.

Issues to consider before you buy this policy:

·         There is no risk cover till the child completes 7 years of age. This means that the policy functions as a deposit scheme till that time. Of course if the child is 8 and above risk is covered.

·         Reversionary bonus rates are unknown at this point of time. Rates of bonus have been inconsistent and rates of return are not very high. The Final Additional Bonus is an unknown quantity at this point of time.

·         The annual premium for a Sum Assured of 1 lakh is Rs 5586 at age 5. Premium will be payable for 20 years. The total amount paid will be equal to Rs. 111,720. (5586 X 20 = 111720). If Service tax is added, the total amount paid as premium will be higher.

Our View:

·         On an overall basis, we are not in favour of insuring children unless they are earning an income. It is much better to insure the parent who is paying the premium. It is a poor parent who hopes to profit by the death of his child.

·         If on the other hand the objective is to instill a savings habit in the child, a look at the maturity benefits will reveal why we do not advocate taking insurance for investment returns. In the benefit illustration provided by LIC the final payable amount (All Survival Benefits + Maturity Amount + Bonuses) will range from 104,000 to 158,500. We doubt whether the upper end of the range will be achieved. Remember, you would have already paid a total premium of Rs. 111,720. Would you be better off with other avenues of investments?

We at policylitmus believe that insurance is a critical need. However it is equally important to buy the right policy and not be misled by incorrect advice. Find out the best policy for you, from over 1000+ products without giving away your contact details.