Vishal Manakame wrote :

Sir,

I accidentally came across your blog while researching for Children policy. I did spend some time reading the posts on your blog and found it really informative and hence this question. I look forward to seeing your advice on this.

I am 36 and am looking for a children policy for my 4 yr old son. My objective is to have sufficient funds by the time he finishes school and goes into higher education - so looking for a 15 yr time frame and generating about 20 lacs by that time.

My objective is more on generating a corpus rather thaninsurance, which I feel I can ans will need to buy some term policy.

Thanks much

VM

SRIKANTH'S COMMENTS :

Dear vishal,

Please remember that you are investing for your kid for future returns rather than Insurance. Right?

I always say ULIPs are expensive products with high initial charges.I am not in favour of any child plan . If one has enough term coverthat will do. Child plans are long term gambles like ULIPs. How well aninsurance company manages your investment part is a gamble. These are all ways to get more money from you. At maturity you will realise that the returns are not great. Better to keep INSURANCE & INVESMENT separate.

However,let me first tell you about Insurance Child Plans. Compared to OtherChild Plans, your choice of HDFC seems okay especially because HDFC in addition to Death Benefit option also offers Critical Illness Benefit.

I however felt ICICI Smart Kid RICH fund is slightly better.You can compare it with HDFC Young Star Plus also, though ICICI SmartKid scores over it in many aspects. For instance, HDFC has highallocation charges in first year (60%) compared to ICICI Smart Kid(18%) in a regular ULIP. So you will have lesser units in your coffersin early years, especially in times when sensex is reported at all timelow. Please consider for all three important riders (I) Premium BenifitRider (II) Disablity and Accidental Benifit Rider and (III) IncomeBenifit Rider. Do not discontinue paying premiums (in case you areopting for regular premium) after three years or so. ULIPs are longterm products and prove fruitful only in long term.

Please try to compare Illustrations of following Child Plans & Term Plans from Same Insurance Company.

BIRLA SUNLIFE CHILD DREAM PLAN with MAX. COVER with Minmum GUARNTEED Benifit of Rs.75000/- & Minimum PREMIUM.

KOTAK HEAD Start Future Builder

ICICI PRU SMARTKID

AVOID those Plans which offer Lower Insurance Cover(10 Times of Annual Premium).

Pleas.If possible, try to get the Feb 2009 issue of Outlook Money. It is KIDSSpecial & Contains very Usefull Information about Future Secure ofChildren.

My take is, Go for Term Insurance.They are cheap and then invest in Good Diversified Mutual funds,especially those which offer Free Insurance Cover.I.e, if you reallyinterested in this Insurance Combo offer.

Among the Funds that OfferFree Insurance Cover, DWS Tax Saving Fund is the best, as it offers 5times your Investment as Insurance Cover with no Conditions or finePrint. And, after the Compulsory lock-in period of 3 years, there is noexit load too.

My Fund Picks for your son would be

Birla Sunlife Equity Fund

DWS Tax Saving Fund

Kotak K30 Fund

Reliance Growth Fund

Birla Offers 100 times your Monthly Payment as LIfe Insurance

DWS offers 5 times your invested amount as Life Insurance

Kotak and Reliance offer to pay your Balance SIP amount in case of your death.

Some Funds like Principal Personal Tax Saver and HDFC Children`s Gift Fund offer Accidental Insurance Cover too.

However,stick to the above funds for Good Gains and are definitely better thanULIPs. Child Plans are just Attractive Packages with nothing inside.Just buy Mutual Funds recommended by me and keep it aside as if youhave invested in a Child Plan and do not have the right to withdrawtill 18 years and see the magic of Compounding giving you absolutelystunning returns.

Best of luck,

Srikanth Shankar Matrubai