It is a common practice to receive inflows in installments from child plans towards the end of the term. What investors would find interesting is the fact that it is possible to pay lower premiums and yet receive higher amounts on maturity. The secret lies in taking more than one policy i.e. if the sum assured you were looking at was Rs 100,000, then opting for five policies of Rs 20,000 each over five different tenures will do the trick. Let us use an illustration to better understand the same.
Mr. X who is presently 31 years old wishes to opt for a child plan for his 3 year old daughter; the sum assured is Rs 2,50,000 for a 20 year term.
Now instead of opting for a single child plan for the required sum assured that will entail high premiums, Mr. X can opt for 5 policies of Rs 50,000 each. A smart choice would be the children's plan offered by HDFC Standard Life Insurance with the double benefit option. Since the proposed plan offers a single cash flow to the policy holder on maturity, the chosen plans should be of varying tenures to bring them on par with other child plans.
| Sum Assured (Rs) |
Term (yrs) |
Child's age |
Annual premium (Rs) |
Total premium (Rs) |
| 50,000 | 16 | 19 | 3,244 | 51,904 |
| 50,000 | 17 | 20 | 3,042 | 51,714 |
| 50,000 | 18 | 21 | 2,862 | 51,516 |
| 50,000 | 19 | 22 | 2,700 | 51,300 |
| 50,000 | 20 | 23 | 2,554 | 51,080 |
| 257,514 |
Conventional child plans offer returns in 4-5 installments comprised of a percentage of the sum assured and bonus. To better understand the working let us consider two child plans offered by insurance companies P and L respectively.
Insurance Co. P
|
Insurance Co. L
|
Clearly opting for more than one policy has helped the policy holder by saving on the premium amount paid. Another interesting feature is that with varying terms the premium amount reduces progressively from the 16th year. Now for the other aspect, which most policy seekers are keenly interested in i.e. returns on maturity. Since the bonus is an integral part of the maturity proceeds, they have been computed assuming a rate of 6% for all the policies.
| HDFC Life | Co. P | Co. L | ||||
| Term (yrs) | Amt (Rs) | Components | Amt (Rs) | Components | Amt (Rs) | Components |
| 16 | 108,000 | SA+Bonus | 62,500 | 25%of SA | NIL | NA |
| 17 | 111,000 | SA+Bonus | 50,000 | 20%of SA | 62,500 | 25%of SA |
| 18 | 114,000 | SA+Bonus | 50,000 | 20%of SA | 62,500 | 25%of SA |
| 19 | 117,000 | SA+Bonus | 50,000 | 20%of SA | 62,500 | 25%of SA |
| 20 | 120,000 | SA+Bonus | 326,881 | 20%of SA+B. | 362,500 | 25%of SA+B. |
| 570,000 | 539,381 | 550,000 | ||||
(Bonus rates are indicative in nature and may vary depending on the insurance company)
The numbers say it all! Despite having paid lower premiums, policy holders can receive higher returns by opting for more than one policy. So go ahead and get that child plan, its like having your cake and eating it too!
