The New LIC Amritbaal Policy: Can It Help You Plan for Your Child’s Future

This product is non-participating, meaning that benefits paid upon death or survival are guaranteed and predetermined regardless of actual performance. Therefore, the policy does not offer any discretionary benefits such as bonuses or shares in surplus. The plan is available for purchase offline through licensed agents, corporate agents, brokers, insurance marketing firms, point of sales persons-life insurance (POSP-LI), and common public service centres (CPSC-SPV), as well as online via the website www.licindia.in.

Here Are the Key Features of the LIC's Amritbaal (Insurance Plan for Children):

• Throughout the Amritbaal Policy term, there is a fixed Guaranteed Addition of Rs 80 per thousand Basic Sum Assured. This means the plan offers 8% guaranteed returns on the basic sum assured, which will be further added to your investment and give the benefit of compounding.

• You can customise your child's Life Insurance coverage according to your requirements.

• Amritbaal Policy offers flexibility to:

  - Select between Single Premium and Limited Premium Payment.

  - Choose the maturity age between 18 to 25 years based on your child's needs.

  - Opt for instalment payments for benefits.

• You can add a Premium Waiver Benefit rider by paying an extra premium.

• Avail of the attractive High Sum Assured Rebate.

• The plan addresses liquidity requirements through the loan facility provided.

• The policy allows entry from as young as 30 days old up to a maximum of 13 years old.

• The maturity age ranges from a minimum of 18 years to a maximum of 25 years.

• For single premium payment, the minimum policy term is 5 years, while for limited premium payment, it is 10 years.

• The maximum policy term for both limited and single premium payment options is 25 years. Meanwhile, for policies procured through POSP-LI/CPSC-SPV, it is 20 years.

• The premium payment term for limited premium payments is 5, 6, and 7 years.

The modes of instalment include monthly, quarterly, half-yearly, or yearly, with minimum instalment amounts of Rs 5,000, Rs 15,000, Rs 25,000, or Rs 50,000, respectively.

LIC stated that upon maturity, the sum assured, along with guaranteed additions, will be paid for active policies. Alternatively, the maturity amount can be received through instalment settlement options over 5, 10, or 15 years.

In the event of the policyholder's death during the policy term of an active policy, the guaranteed additions for the year of death will be paid for the entire policy year.

If an active policy is surrendered, the guaranteed additions for the policy year of surrender will be added proportionally relative to the completed months of the Policy Year in which the surrender occurs.

For active policies, a premium waiver benefit rider can be selected for the proposer of the policy (as the life assured is a minor) by paying an additional premium.

What Are the Benefits of LIC's Amritbaal Policy?

1. Flexible Entry Age: The plan offers a wider entry age range, starting from 30 days and extending up to 13 years, providing more flexibility compared to LIC's other child plans that have a minimum entry age of 90 days and a maximum entry age of 12 years.

2. Payment Options: Policyholders have the flexibility to choose between single and regular premium payment options based on their financial preferences and requirements.

3. Flexible Premium Payment Terms: Policyholders can opt for premium payment terms of 5, 6, or 7 years or select a single premium payment option, offering greater flexibility in managing premiums.

4. Minimum Policy Term: The plan allows for a minimum policy term of 5 years, providing options for shorter-term coverage if needed.

5. Maximum Maturity Age: With maturity ages ranging from 18 to 25 years, the plan accommodates various life stages and financial goals of the child/parent.

6. Guaranteed Additions: Assures policyholders of guaranteed additions at a fixed rate of Rs 80 per thousand of the basic sum assured, enhancing the policy's value over time with cumulative returns.

7. Paid-up Policy Guaranteed Additions: Even if the policy becomes paid-up, it continues to accumulate guaranteed additions, ensuring ongoing benefits.

8. Premium Waiver Benefit Rider: Provides an additional layer of financial security by waiving future premiums in case of specified events, such as the death or disability of the proposer.

9. Settlement Options: Offers flexibility in receiving the maturity amount through various settlement options, allowing policyholders to tailor the payout according to their financial requirements.

10. Loan Against Policy: Allows policyholders to leverage the policy's value by availing of a Loan Against Insurance Policy after 2 years of policy commencement in case of regular premium payment and immediately after the cheque clearance in case of single premium payment, offering liquidity when needed. Additionally, if the policy is in the name of a girl child, for whose education the loan is opted, the benefit of 100 bps is offered on the interest rate.

11. Tax Benefits: Provides tax benefits under Section 80C of the Income Tax Act, allowing policyholders to reduce their taxable income by the premium amount paid while the maturity amount remains tax-free, enhancing overall tax efficiency.

What Are the Drawbacks of LIC's Amritbaal Policy?

One area where the policy may fall short is its potential to build a substantial corpus for a child's education. The investment amount required to create a sufficient corpus through Amritbaal Policy can be very high compared to alternative investment options like equity mutual funds. These high premiums can significantly impact the amount available for investment, thereby limiting the growth potential of the corpus over time.

Additionally, the returns generated by the policy may not always be sufficient to meet the rising costs of education, especially considering the impact of inflation. Education inflation is among the highest in the world. Even if you take the example of your child's school fees, it increases by about 10% every year. Hence, the guaranteed returns of 8% may not be able to counter inflation effectively in the long run. This could leave parents with a shortfall when the time comes to fund their child's education, potentially necessitating additional financial resources or loans to bridge the gap.

Moreover, the lack of flexibility in the policy's investment options means that parents may miss out on opportunities for higher returns available in the market. Without the ability to adjust investments based on market conditions or investment performance, the policy may not be able to maximise returns over the long term, thereby hindering the growth of the education corpus.

Besides, the premiums for such endowment policies can often be considerably higher compared to term plans that offer maximum coverage for a minimum premium. The LIC's Amritbaal Policy offers very limited life insurance coverage, which might not be helpful to the family in case of an unfortunate event. This indicates that even if you buy this policy, you will need to have sufficient term insurance coverage to fulfil your family's life insurance requirements.

The plan may have higher associated costs, such as administrative fees, mortality charges, and other expenses, which can reduce the overall returns compared to investing directly in mutual funds.

Should You Invest in LIC's Amritbaal Plan for Your Child's Future?

Whether to invest in LIC's Amritbaal Policy for your child's higher education depends on various factors, including your financial goals, risk tolerance, and investment preferences. Here are some points to consider:

1. Investment Goals: Determine if the plan aligns with your goal of saving for your child's higher education. Consider whether the plan's features, such as guaranteed additions and coverage options, meet your specific needs and objectives.

2. Risk Tolerance: Assess your risk tolerance and investment preferences. The plan may be suitable if you prefer a low-risk option with guaranteed returns and insurance coverage. However, if you're comfortable with market fluctuations and seek potentially higher returns, alternative investment options like a portfolio of carefully selected, diversified mutual funds may be more suitable.

3. Cost vs Benefit: Evaluate the cost of the plan, including premiums, fees, and charges, against the potential benefits it offers. Consider whether the premiums are affordable for you and if the benefits justify the cost compared to other investment avenues.

4. Tax Implications: Understand the tax implications of the plan, including tax benefits on premiums paid and tax treatment of maturity proceeds. You should also compare the tax implications of alternative investment options when comparing different investment avenues. It is best to consider consulting a tax advisor or a SEBI-registered financial planner to determine the most tax-efficient investment strategy for your child's education.

To conclude:

While the LIC's Amritbaal Policy offers guaranteed returns, insurance coverage, and tax advantages, parents must critically assess its suitability for their child's education fund. There's a concern that the policy's returns may not effectively combat inflation over time, potentially diminishing the purchasing power of invested capital.

Comparatively, mutual funds present the potential for higher inflation-adjusted returns, offering a more dynamic investment option. However, note that mutual funds are considered riskier than fixed-income products and do not offer guaranteed returns.

As I have said in my previous articles, it is not recommended to intertwin insurance and investment, as doing so will likely result in suboptimal results for both. It is best to prioritise term insurance with sufficient coverage for your dependents' needs and invest the remaining funds into carefully selected diversified equity mutual funds that can generate inflation-beating returns.

However, if you are risk-averse, it makes sense to adhere to a term plan combined with reliable low-risk investment avenues like the Public Provident Fund (PPF) and bank fixed deposits.

Therefore, it's imperative for parents to weigh the benefits and drawbacks carefully, considering their long-term financial goals and risk tolerance before deciding on the most suitable investment strategy for their child's education. If you want to make sound financial decisions and grow your money, it is advisable to reach out to a SEBI-registered financial planner.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.