LIC Jeevan Ankur is new addition to its existing bouquet of eight child plans. It offers inbuilt income benefit in case of death of the policyholder, paying 10% of the sum assured every year till the end of the policy term

LIC (Life Insurance Corporation of India) has launched Jeevan Ankur, a traditional child plan offering single or regular premium option. In case of death of the policyholder, it pays sum assured (SA) to the nominee, 10% of the SA payable every year till end of policy term as income benefit and maturity benefit of SA along with loyalty bonus, if declared. If the policyholder survives the policy term, the product will pay maturity benefit of SA along with loyalty bonus, if declared.

Traditional child plans are popular due to secured returns, even if they are low. This is due to the appeal that parents are setting aside money for safe investment as well as covering the risk in case of their absence. Waiver of Premium (WoP) is a main feature of a child plan wherein future premiums are waived off by the insurer upon death of the policyholder. The policy continues till the end paying the maturity benefits. WoP comes at a price, which is reflected in the premium paid by the policyholder. The income benefit of 10% of SA paid every year on death of policyholder also comes at a price. Being a traditional plan, charge for WoP, charge for income benefit or any other policy charges are opaque to the customer. The customer has to pay for the risk cover and all the benefits offered by the insurer. There are no free lunches. What is transparent in a traditional plan is the premium and benefits of the product.

The annual premium for 35-year old person paying premium for 25 years and SA of Rs1 lakh is Rs3,587 (exclusive of service tax). Over the policy term, the customer will pay total premium of Rs89,675. The guaranteed payment on maturity is Rs1 lakh plus non-guaranteed bonus. Customers will hope for good bonus, considering track record of LIC. While it may not seem to be great savings instrument for child financial planning due to high dependency on decent bonus, the insurance component of the product is beneficial in case of untimely death of the customer. E.g. If the policyholder dies after 10 years, the total premium payment will be Rs35,870 (exclusive of service tax). LIC will pay Rs1 lakh to nominee, 10% of SA (Rs10,000 in this example) every year till end of policy term and maturity benefit of Rs1 lakh plus non-guaranteed bonus. In this example, the nominee is assured total benefit of Rs3 lakh plus non-guaranteed bonus.

The product offers optional riders of critical illness and accidental death benefit. There is no loan facility under this plan. Premium payment can be monthly (ECS only), quarterly, half-yearly (1% premium rebate) and yearly (2% premium rebate). The product also offers high SA rebate. For A single premium option with SA of Rs2 lakh to Rs4.95 lakh, the rebate will be 4% of SA; Rs5 lakh and above SA, rebate will be 6% of SA. For regular premium option with SA of Rs2 lakh to Rs4.95 lakh, the rebate will be 2% of SA; for Rs5 lakh and above SA, the rebate will be 3% of SA.

The minimum and maximum age of policyholder can be 18 and 50 years, respectively. Maximum maturity age is 75 years. Minimum and maximum age of child is 0 and 17 years. The minimum policy term is higher of 18 minus age of child and 8 years. The maximum policy term is 25 minus age of the child. The minimum SA is Rs1 lakh while there is no upper limit.

New child plans (traditional and ULIP) are being rapidly launched by insurance companies. It is one of few segments doing reasonable business in the face of declining new business premium collection for life insurers.