We review the new LIC Amritbaal insurance cum investment plan so that parents are aware that the plan is not good for most people. We will also show what to do instead for your kid’s goals.
As per the brochure on the LIC India website, LICs Amritbaal, Plan No 874, UIN: 512N365V01
is a Non-Linked, Non-Participating, Individual, Savings, Life Insurance plan
What do these terms mean?
The plan is specifically designed to have an adequate corpus to meet the higher education and other needs of your child
The maturity period is selected to the time when the child goes to college. Whether the corpus is “adequate” or not will depend on two things:
We will discuss this point in detail in this article.
It facilitates accumulation of corpus through Guaranteed Addition
This is the hook that brings in parents. The brochure says “Guaranteed Addition ₹80 per thousand Basic Sum Assured throughout the Policy Term” and many people interpret this as an 8% return. We will explain how this calculation works and how the return, though guaranteed, is not 8%.
The parent takes the policy and pays the premium.
This policy ignores the risk of the earning parents dying and not leaving behind enough money for the child. Instead of insuring the more likely risk of the premature death of the parent,
this policy pays out money if the child dies.
This is absurd.
The insurance is taken on the life kid who is not yet 13 at the time of buying the policy. This will be harsh but it should be obvious that the target market for this plan is people who plan to financially benefit from their own child’s death.
Most people should give up on considering this plan and jump to the alternatives section by clicking the link below:
⬇️ Jump to the alternative investment plan section
No, it is not 8%. That will be remarkable and it is very clearly not so. The plan offers ₹80 per 1000 of the sum assured (8%) as a guaranteed addition. But this amount is paid at the end. It is not paid every year and therefore does not compound.
We have taken this example from the brochure:
and calculated the XIRR of the investment
This example is also from the brochure:
The IRR for this example is 6.22%.
This whole plan is therefore a compromise with
Related:
How to pay for an IIT Engineering degree with only PPF investment?
Of course, investors willing to take a bit more risk, which they should to beat educational inflation (7-10%), have the option of investing in equity and debt markets via mutual funds.
A parent may invest in this plan if they fulfil all of the conditions below:
Other parents should avoid this plan and follow the alternative planning method below.
Your child’s school and other regular expenses will come from monthly income. But you need to plan for bigger expenses in advance:
Which of these are you saving for:
To understand how to create a child’s education plan:
You need to ensure that an untimely death will not prevent your child from going to their future dream college. Term insurance is the right product here. Every earning member of the family must have adequate term insurance.
The whole family, i.e. child and parents should also have sufficient health insurance. This step prevents loss of income or a setback to investment goals due to illness.
Children’s education and other goals do not exist in isolation. They are a part of the comprehensive goal-based planning that parents need to do for their own retirement and everything else. The process is explained best with these examples:
There are more case studies here: Case Studies.
We have proven that the goal-based investing process works in most market conditions in this article: What is the best way to invest for your child’s college education?.
As time passes, things change:
Therefore the plan created in Step 3 has to be reviewed and rebalanced to check if you are still on track: Are your investments on track for your goals?.
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This post titled Why LIC Amritbaal policy is a complete wastage of money: how to invest for your child in the right way first appeared on 22 Feb 2024 at https://arthgyaan.com
