LIC’s Amritbaal 8% GUARANTEED Plan for Children – Should you invest?

A new insurance plan for children, LIC’s Amritbaal 8% GUARANTEED Insurance Plan, was introduced on 17th Feb 2024. Does this policy really offer 8% returns?

LIC’s Amritbaal is a Non-Linked, Non-Participating, Individual, Savings, Life Insurance plan. Hence, it is a traditional plan. The plan is available both online and offline.

The first question you have to ask yourself before we go further is – Is life insurance required for a child? Life insurance is required for those who have financial dependents and are also earning members. In simple terms, you don’t need life insurance if no one is financially dependent on you or you are financially independent enough that your absence may not impact your financial dependence.

However, life insurance companies even though the primary business is to offer life insurance, offer us INSURANCE + INVESTMENT products. Hence, the purpose of life insurance on a kid’s name is basically to sell you an INSURANCE + INVESTMENT product, not a pure insurance product.

LIC’s Amritbaal 8% GUARANTEED Plan for Children – Features

What does this LIC’s Amritbaal GUARANTEED Plan for Children offer you?

• Guaranteed Addition of Rs.80 per thousand Basic Sum Assured throughout the Policy Term.
• Option to choose Life Insurance coverage for your child as per the needs.
• Flexibility to – Choose from Single Premium and Limited Premium Payment, Choose the maturity age from 18 to 25 years for the various needs of your children, and Opt for payment of benefit in installments.
• Option to choose Premium Waiver Benefit rider on payment of additional premium.
• Loan facility to cater to your emergency needs.

LIC’s Amritbaal 8% GUARANTEED Plan for Children – Eligibility

• Minimum age at entry – 0 Yrs (30 days)
• Maximum age at entry – 13 Years
• Minimum age at maturity – 18 Years
• Maximum age at maturity – 25 Years
• Minimum policy term – 10 Yrs (for limited premium payment) and 5 years (for single premium)
• Maximum policy term – 25 Yrs (for both limited premium payment and single premium)
• Premium payment term – 5,6 and 7 Yrs for regular premium
• Minimum Sum Assured – Rs.2,00,000
• Maximum Sum Assured – No limit
• Proposers (parents) can opt for premium waiver benefits. If the proposer has opted for this and if the proposer dies, then the future premiums will be waived off and policy benefits will continue as usual.
• Maturity and death benefits either can be availed as lump sum payout or in installments.

Date of commencement of risk: In case the age at entry of the Life Assured is less than 8 years, the risk will commence either 2 years from the date of commencement of the policy or from the policy anniversary coinciding with or immediately following the attainment of 8 years of age, whichever is earlier. For those aged 8 years or more at entry, risk will commence immediately i.e. from the Date of issuance of policy.

Date of vesting under the plan: The policy shall automatically vest in the Life Assured on the policy anniversary coinciding with or immediately following the completion of 18 years of age and shall on such vesting be deemed to be a contract between the Corporation and the Life Assured.

LIC’s Amritbaal 8% GUARANTEED Plan for Children – Benefits

a) Death Benefit

Here, there are two options under both limited premium payment and single premium payment.

Limited Premium Payment – Option 1 – higher of 7 times of an annual premium or basic sum assured. Option 2- higher of 10 times of annual premium or basic sum assured.

Single Premium Payment – Option 3 – higher of 1.25 times of single premium or basic sum assured. Option 4- 10 times of single premium.

If your child is below 8 years, and death happens after two years of policy commencement (or after attaining the age of 8 years, whichever is early, then the nominee will receive the Sum Assured + Accrued Guaranteed Addition.

However, in the case of minor Life Assured, whose age at entry is below 8 years, on death before the commencement of Risk, the Death Benefit payable, will be a refund of premium(s) paid (excluding taxes, any extra premium, rider premium(s), if any), without interest.

Nominees can receive the death benefits in installments too.

b) Maturity Benefit

On Life Assured surviving the stipulated Date of Maturity, provided the policy is in force, “Sum Assured on Maturity” along with accrued Guaranteed Additions for in-force policy, shall be payable; where “Sum Assured on Maturity” is equal to the Basic Sum Assured.

LIC’s Amritbaal GUARANTEED Addition

This plan offers Rs.80 per Rs.1,000 sum assured as a guaranteed addition. Hence, let us say you have opted for Rs.5 Lakh of Sum Assured, then the yearly GA in this case is Rs.40,000 (Rs.5,00,000*Rs.80)/Rs.1,000.

Do remember that this GA accrued each year will not earn a single penny of returns in subsequent years. For example, in the first year Rs.40,000, second year Rs.40,000 and so on…After 5 years, the accrued GA will be Rs.2,00,000 (Rs.40,000*5). Otherwise, let us say you have opted for 20 20-year policy and the sum assured is Rs.5,00,000, then the GA available at the maturity is Rs.8,00,000 (Rs.40,000*20).

Because of this, even though it looks like Rs.80 per thousand of sum assured or 8% GA, the returns will reduce drastically. I have explained the same in an example.

LIC’s Amritbaal 8% GUARANTEED Plan for Children – Should you invest?

As I mentioned above, you have to ask yourself whether a LIFE INSURANCE is required for your child or not. I have mentioned above that who actually can avail of life insurance and who must stay away from life insurance. Here, in this plan, the life assured is a child and on whom no one is financially dependent means LIFE INSURANCE IS WASTE.

Life insurance should be always on the person who is earning and who has financial dependents. Hence, one must ignore the INSRUACNCE part of this product completely.

Now, if we consider this product as an investment, then whether this product offer us 8% returns? Let us see an example provided by LIC itself in its sales brochure.

Example – Age of the child is 5 years, the maturity age is 25 years, the policy term is 20 years, the premium paying term is 7 years, the mode of premium payment is yearly, the sum assured Rs.5,00,000 and the premium is Rs.73,625.

With this example, if we calculate the returns at maturity, then it is 5.6% but not 8%.

When the education inflation is increasing at the rate of more than 8% in India, by investing in such a low-yielding product, you are devaluing your money and risking the future of your kid.

However, if you feel 5.6% is the BEST return for your child’s future, and as the tagline associated are LIC, GUARANTEE, and CHILD plan, then definitely you must invest in this.

I repeat once again, in India if a product provider offers three features, then investors blindly invest – GUARANTEE, TAX BENEFITS, and CHILD or PENSION plan. None care about future value and how it is going to be beneficial for our future goals.