How does a child insurance policy work? Can I invest in a policy that gives me a lump sum for higher studies and marriage of my seven-year-old daughter?

? Madhu Sharma

A child plan can help you secure your child?s future by ensuring that his/her various financial life cycle needs, such as expenses for higher studies and marriage, are taken care of. Opt for a child plan where you are the insured and child is the beneficiary. This way, your child will get the benefits irrespective of the presence of the insured parent.

Depending on your risk appetite and investment objectives, you can choose from a variety of child plans that are available in both unit-linked and traditional spaces. There are also plans that insure minors and can be used as an investment tool.

I am a 40-year-old executive and want to take a term plan? What are the factors I need to look at? What would be the yearly premium for a coverage of R50 lakh?

? Arvind Kumar

In pure-risk products, price is the key differentiator. Compare offerings from different insurers on this basis for your age, selected sum assured and term. Also, consider buying a term plan online as they tend to be 10-15% cheaper than their offline counterparts.

Premium will vary depending on age, health conditions and lifestyle (e.g. premium for smokers could be higher), since the degree of risk would be different in each case.

I want to surrender my unit-linked insurance policy that I bought in 2010. How should I go about it and what will be the surrender charges?

? Praveen Madhavan

It depends on when you bought your policy in 2010, since the new guidelines, effective September 1, 2010, changed the norms governing Ulips. The lock-in period was increased from three to five years.

If you bought your policy before September 1, then the three-year rule would apply and you would get your money post deduction of the surrender penalty, which would depend on the terms and conditions of your particular plan.

However, if you bought your policy after September 1 and you choose to surrender now, you will get the payout only after the completion of five years from the policy initiation.

In such cases, on surrender, the proceeds are diverted to a discontinued fund where it remains for the remaining period earning nominal interest.

But it is important to realise that Ulips are products designed for the long-term and its value is unlocked only over its term. Premature surrenders are almost always a loss-making proposition for the policyholder. If you have a choice, it is advisable to stay invested for the longer term.

The writer is executive vice-president, Kotak Mahindra Old Mutual Life Insurance

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