Kotak Life child plans: No risk, not much gain

The life insurance space saw a flurry of launches last month, targeted at children, or rather, their parents. Child plans constitute a major source of premium inflow for life insurers.

Kotak Life introduced two child plans - Child Edu Plan and Child Future Plan - last month. Both these plans fall in the category of endowment/money-back products. These products essentially offer bonuses as declared every year in addition to the basic sum assured.

Unlike Ulips (unit-linked insurance plans), there is no scope for directing even a part of your premiums towards equities, limiting their (endowment products') return earning capability. On the other hand, those wishing to avoid fluctuation in returns owing to market movements can look at these products if they are convinced about the insurance-cum-investment concept.

Child education plan

This product is meant for parents with kids up to 10 years of age. The plan promises a guaranteed amount (a total of 125% of the basic sum assured) over a period of time to aid the child's education. The payouts - termed 'edu boosters' - will flow in at ages 15, 17, 19 and 21. The life assured (parent) will have to continue paying premium till the child turns 17.

Upon completion of the policy tenure, when the child is 21, the reversionary bonus and terminal bonus (if any) will also be paid. The benefits will be payable even in the event of the parent's death or accidental disability and resultant discontinuation of premium payment. The policy will also hand over 200% of the sum assured to the nominee in case of the life assured's death.

Child future plan

Most features are similar to Edu plan, except that this product hands out defined benefits when the child turns 23 and 25. It comes with a fixed premium payment term of 10 years from the date of entry. The policyholder has the option of buying rider benefits like term benefit/preferred term benefit, accidental death benefit and permanent disability benefit (PDB) under both the plans. The first two promise lump-sum amount if the event occurs. In case of permanent disability due to an accident, the amount will be paid in instalments.

Upside

These products may appeal to risk-averse individuals who are convinced about the merit of the insurance-cum-investment concept.

Downside

Endowment products lack transparency on charges, creating hurdles for those wanting to make a cost-benefit analysis. Besides, the lack of equity component restricts such plans' return-yielding ability.