Ulip child plans give higher returns…

New Ulip guidelines are applicable for all fresh (new) policies purchased on or after September 1,2010,after the new norms came into effect. Policies purchased before this will continue to be governed by the contractual terms agreed at the time of purchase.

Should I continue paying premium for the Ulip that I bought three years ago?

–Pooja Sharma

Yes. Ulips maximise benefits over the long term and you must continue for the maximum tenure subscribed in your plan. Key differences between old Ulips and new ones are spread of charges,which can now be done via the policy term,reduction in surrender penalty and increase in lock-in period from 3 to 5 years. After three years,a greater part of the premium is invested,to the policyholder’s greater gain. Hence,exiting at this stage will deprive you of the benefit you gain by staying invested and you will have to pay penalty for premature surrender.

What are universal life policies and how are they different from Ulips? Please suggest a better policy.

–R Ramamurthy

A universal life policy is a flexible insurance cover where policyholders can change premium amounts,sum assured,secure premium holidays etc. While universal life plans are built around greater flexibility with moderate returns,Ulips combine transparency with higher returns over the long term. Ulips offer professionally-managed exposure to equity,which offers high long-term returns. Irda is expected to come up with separate guidelines on universal life policies soon. I would suggest that you wait till these guidelines are in place.

An agent has suggested that I take LIC’s Komal Jeewan child plan for my two-year old son. If I invest around Rs 28,000 (the annual premium for the policy for Rs 5 lakh) every year for the next 18 years,I will get around Rs 11 lakh when he is 21 years old. If I put in the same amount of money in his PPF account,will the return be more?

–Umang Shah

A child plan helps you save over a long period of time,creates a corpus for your child and provides insurance cover on the parent’s life which ensures that even if the parent is not around to pay premiums,the child gets the corpus on maturity through waiver of premium benefit. The plan you have referred to is a traditional one and returns may be close to PPF,but it does not offer fixed returns. If you want higher returns and save over a long period,you could try child plans on the Ulip platform.

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

* Send your queries at fepersonalfinance@expressindia.com