Aviva’s Young Scholar Advantage child plan is a Unit Linked Insurance Plan (ULIP). Can it serve the purpose of meeting the financial planning goals of your child ? Or are you buying because Sachin Tendulkar is branding the product ?
Whatever might be your situation, it might be worthwhile to read about Aviva’s child plan if you have already bought it or are considering purchasing the product.
As the name itself suggests, it is meant for parents to save money for the future financial requirements of their child.
Features of Child Plan
This policy can be taken by any parent between the age of 21 – 50 years with a child who is between 0 -17 years of age.
The policy term can be between 10 to 25 years subject to a maximum age of 70 years. The premium paying term is 5 years minimum as per the regulator’s guidelines of a lock in of 5 years for ULIPs.
If the policy is for 5 years, the minimum premium is Rs 1 lakh otherwise the minimum premium is Rs 20,000. There is no limit on the maximum premium.
A choice of 9 funds are available to invest your money in.
Child Plan Benefits
As with any other child policy, this one also pays a death benefit on the death of the policy holder.
All the future premiums are waived off and paid by the insurance company into the fund value of the policy as a lump-sum and the policy continues till maturity. This makes sense as with the primary earning member of the family not around, premiums anyway cannot be paid by the family. This is how most of the child policies are meant to work.
Also, in case of death due to accident, an additional amount is paid out.
Loyalty bonus will be added to the fund value as well. The addition will be 1.5% of fund value at the end of year 11 and thereafter at the end of every subsequent 2nd policy year.
Being a type 2 ULIP, on maturity the fund value will be paid out as well along with loyalty additions.
There are three riders available.
1. Aviva Child Education (CE) Rider helps in a monthly amount to be received by the child in case the parent dies. This ensures that the child’s education continues without any hiccups.
2. Comprehensive Health Benefit (CHB) Rider is applicable when a disability or critical illness happens to the parent. In this case, future premiums are waived off.
3. Aviva Term Plus Rider is an additional amount paid on death of the insured.
Charges
Every ULIP has premium allocation charges, policy administration charges and fund management charges.
The premium allocation charges are 6% for year 1 and 4% for year 2 -5 and 3% thereafter if the premium is less than Rs 1 lakh otherwise 2% for premiums above Rs 1 lakh.
The policy administration charges are 0.1% of annual premium subject to a maximum of Rs 750 per month.
The fund management charges are 1.35% per annum.
Should you buy this child plan ?
If you have already bought this plan, then there might be no option but to continue with it as you can break even only in the long term. However, depending on how much premium you are paying per annum and whether you can afford it with no impact to your overall financial planning, a decision needs to be taken.
For new buyers, it might make sense to stay away as long as you are disciplined enough to invest for the financial goals of your children every year and have enough term insurance cover to protect your liabilities. If you think you might not be able to save in a disciplined manner then maybe this product can help you with forced savings.
But then decide based on the returns it offers.
As you can see below from the chart, for a premium of Rs 50,000 that an investor pays per annum, the net yields are as low as 3.00% and only as high as 7.15%.
That is really pathetic – why would you get into a product which requires you to be locked in for so long a duration and one that pays you so poorly, even bank FDs at this time are fetching around 9% – 10%.
Other products of course cannot waive off the premiums for you and give a pay out on maturity, but that is exactly what the money received from term insurance is meant to do.
Do you have this child plan or any other one for that matter ?
pattu says
Ulips are in general complicated products and best avoided and I dont have any. However to be fair to them, IRDA forces them to only show 6% and 10% results so the net yield can be lower than 3% (we saw that from the recent equity article!) and higher than 7.15%.
In principle, in the long run if one manages the equity and debt component in a ULIp intelligently once can get good returns. It will be like a balanced fund with high expense ratio. It may not be best product but in principle once can achieve goals with this.
Vivek K says
You are right Pattu, I think this is for people who don’t have time and patience to understand financial planning. Just put money somewhere so that it is “saved” for future.
TheWealthWisher says
Exactly, my point !
TheWealthWisher says
Not sure why people think they are complicated – they are in fact very very transparent and easy to understand !
Its just that they come with a baggage of bad impression historically having being mis-sold right left and center.
100% agree to your latter statement that if managed intelligently, they can give good returns.
pattu says
Agreed. The wordings are transparent. Most people dont bother to read!
Chirag says
People think it’s complicated as they don’t read it (if they have time to read they will find better option/alternative) and when after one or two years they try to see what’s happening with their money (afteral when you pay you would like to know how much it’s grown and many dream big mainly due to agent advice given), that time they will find out that it’s complicated and they can’t understand it so easily.
Well the way they can invest blindly in ULIP, same way they could have blindly choosen a term plan + balanced fund but to know that alternative they need time. The only time normal people can give is to agent, sign few papers (policy, ECS), give check and done ! Will wake up after few years to check balance. I don’t think agents market balanced funds, so pople end up with ULIP. I don’t think all of these can manage ULIP to get better returns.
Anyway it’s good and bad both.
I feel it doesn’t provide enough insurance (what it meant for), so not really good. And if it’s also not giving good returns then hummmmmmmm.
Well I don’t have any.
MAX NY one of the ads says ‘Insurance is a long term investment’ – I don’t like this statement. The other ad seems little good, anyway their concept is little better saying not to trust agents ;).
TheWealthWisher says
I agree with you.
The statement “Insurance is a long term investment” means to imply that insurance is investment, which in itself is wrong !
See the issue with team plan + MFs not being known to people is simply because they are not marketed as compared to ULIPs or traditional plans. Once awareness grows, it will be good for everyone.
Rakesh says
@TheWealthWisher,
Agree with you MF + term plans are the best choice. I have invested in the same since last 4 years and have benefited.
Kranti Goyal says
ULIP is also ransparent like MF. In equity part, they didnt declare that which type of stocks they will purchase and in which sector. It is also complicated and various charges associated with that. In my point its better to take simple term plan+Diversify equity fund will solve the purpose in long term and fetch better return then ULIP.
One question: What is tax implication on this policy.
TheWealthWisher says
Why do you say its complicated – as far as I know they do declare which stocks they invest in.
Do you think a term plan + diversified equity MF is going to work for everyone ?
Kranti Goyal says
If ULIP can work for them then MF+Term plan can also. In my point of view ULIP is complicated product, various chaeges are associated with them and If simple financial instrument ia available then why go for complicated one.
My question still remain unanswered. What is tax implication on this policy.
TheWealthWisher says
For tax implication, did you try and find it our yourself. That is how most of the readers contribute here. they find data and come in to talk and other experts agree or disagaree and add more.
Vivek K says
I don’t have this policy and don’t intend to buy it or any similar product for that matter. They are complicated to understand and expensive in nature. With basic financial knowledge one can earn much better returns in long run with combination of Term insurance + Equity MF + PPF. Add FD to the equation if you like.
Jab Term insurance + Equity MF + PPF hai to kahi aur kyu jayen! 🙂
TheWealthWisher says
Yeah, it does work well for knowledgeable investors but people who are not disciplined and don’t invest every month/year, will not forced savings in ULIPs work ?
Vivek K says
Agree but they need to at least spend time to understand ULIPs in order to prevent themselves from mis-selling.
TheWealthWisher says
See this is the problem with the vast majority of investors.
Some like you folks want to learn, some don’t want to, other cannot even understand !
Mis-selling happens because the investor does not know about a product. You will never attain a state when ALL INVESTORS will know about products to avoid misselling. So my point is, if this is going to be the case, then the ball is in the product sellers court not to misell.
Vivek K says
Product sellers have to make money and if they honestly tell you will get 5-7% returns, who would buy?
I saw the latest ad of Max NY trying to showcase their agents think about customers and do not mis-sell. I wonder how much reality there is?
TheWealthWisher says
There will still be buyers as not everyone knows that equity can return a great deal of money.
I think the MAX NY ad is marvelous. It tells a person straight how the agent can cheat him and what to be aware of.
Rakesh says
The charges are too high. I am happy with investing in term plans and MF SIP’s and already reaping the benefits.
faiyaz says
What if i am unable to pay my premiums or i want to surrender my policy. ther is no clear idea. that what i will get back.