SBI Life Retire Smart Plan Review—Should You Buy It?

The SBI Life Retire Smart is a Unit Linked Insurance Plan (ULIP) designed to be a pension plan.

It invests your insurance premium in equities and other debt-oriented funds managed by SBI Life (different from SBI Mutual Fund).

And being a pension plan, it allows you to get the maturity benefits in the form of an annuity. I.e., a periodic payout in retirement as a source of income—in other words, a pension.

Table Of Content

1.) Key Features of SBI Life Retire Smart Plan
2.) SBI Life Retire Smart Plan Fund Options
3.) SBI Life Retire Smart Advantage Plan Review
4.) SBI Life Retire Smart Plan Death Benefits Review
5.) SBI Retire Smart Review of Maturity Benefits

• Maturity value is 101% of total premiums paid
• If the policy generates an annual return of 4%
• If the policy generates an annual return of 8%

6.) Comparison Review of SBI Life Retire Smart vs. PPF
7.) Comparison Review of SBI Life Retire Smart vs. ELSS Fund
8.) Verdict
9.) How to Surrender Your SBI Retire Smart Plan?
10.) Conclusion

The SBI Life Retire Smart Plan is primarily marketed for people working in jobs that do not provide a pension plan in retirement.

As mentioned in the policy document, such retirement planning has become even more important because of the increased life expectancy. Retirement planning should not be neglected—it is true.

But can this SBI Life Retire Smart Plan be a reliable retirement plan for you?

Shouldn’t you understand this policy inside out before making such a big decision?

This SBI Life Retire Smart Plan review will help you analyze, understand, and make the right and reliable financial decision.

Let’s start with…

Key Features of SBI Life Retire Smart Plan:

Since this ULIP is meant to be a retirement plan, its policy features are also quite different from the conventional ULIPs. 

The table below shows the key features of the SBI Life Retire Smart plan.

Let’s figure out how this policy works with an example.

Suppose you buy this policy. You are now 35 years of age. 

And you’re choosing the 25 years policy term with a regular premium—you’ll pay the policy premium throughout the policy term.  Your annual premium is ₹1,00,000.  You will pay ₹1,00,000 annually for the next 25 years. 

This amount, the Retire Smart Plan will invest across the 3 different funds of this policy. Before we proceed with the example, here are the fund options of the SBI life Retire Smart Plan. 

SBI Life Retire Smart Plan Fund Options:

Since this is a product made as a retirement plan, you cannot choose a fund of your choice. 

Instead, your policy will follow a predefined investment strategy. Named as the “Advantage Plan”, this investment strategy employs a varying asset allocation. 

SBI Life Retire Smart Advantage Plan Review:

It is not new for a ULIP policy to follow a predefined asset allocation strategy and restrict investor flexibility. 

Even though a predefined strategy may suit a majority of investors, it does not necessarily suit every investor’s needs. 

This “Advantage Plan” investment strategy spreads your premium across the available fund based on the number of years till your policy maturity. The table below shows how the SBI Life Retire Smart Advantage Plan works. 

The idea behind this investment strategy is that, in the early years, more allocation is given towards the high-risk high-return equity fund. And as you near the policy maturity, your fund value is reallocated to minimize risk and bring more stability to your fund value. 

Now that we have seen how this Retire Smart Plan invests your premium, let’s take a look at the benefits of this policy. 

SBI Life Retire Smart Plan Death Benefits Review:

The SBI Life Retire Smart Plan will pay the death benefit to the nominee in case of the policyholder’s death. It is on one condition that their Retire Smart Plan is in force at the time of death. 

The Death Benefit of the SBI Life Smart Retirement Plan will be the highest of, 

• Fund Value + Terminal Addition (or)
• 105% of the Total Premiums Paid

Terminal Addition: 1.5% of the fund value on date. 

While this is the eligible death benefit, the nominee also has the option to choose how they want to utilize the death benefit. The two options are,

• Receive the Death Benefit as a lump sum (or) 
• Purchase Annuity with a part of or the entire Death Benefit amount. 

When it comes to purchasing Annuity, the nominee can choose to buy it from SBI Life or any other life insurance company of their choice. However, the nominee can use only up to 50% of the proceeds to buy an annuity from the different insurer as per IRDAI regulation. 

Even though the SBI Life Retire Smart Plan is an insurance-cum-investment policy, it does not offer any Sum Assured as Death Benefit. 

Hence, in any worst-case scenario, your nominee is likely to receive 105% of the premiums paid. 

For a life insurance policy and considering risk management, it is totally worthless. In fact, the risk cover is practically non-existent. 

Let’s find out what this ULIP can offer as the maturity benefit. 

SBI Retire Smart Review of Maturity Benefits:

We shall take the same example seen earlier. 

SBI Life Retire Smart Plan with 25 years policy term and ₹1 lakh annual premium—with regular premium payment term. 

Your SBI Retire Smart Plan maturity benefit will be the highest of:

• Fund Value on Maturity + Terminal Addition (or)
• 101% of total premiums paid

Terminal Addition: 1.5% of the fund value on date. 

We have seen that the SBI Life Retire Smart invests in equities as well. Therefore, there is no capital or return guarantee on those investments. 

But the policy guarantees you will receive 101% of total premiums paid, on maturity. Hence, it is more or less a promise of capital guarantee by the SBI Life Retire Smart Plan. 

However, you should note that the minimum policy term of the Retire Smart Plan is 10 years. And it is proven that in the long term, equity investments provide good capital appreciation and the capital risk is extremely low. 

Hence the 101% of the premiums paid as a maturity benefit is simply an empty reassurance from the product sellers.

That being said, you only have 3 options to utilize your maturity benefit. They are, 

• Buy Annuity with the entire maturity amount
• Take up to 60% of your maturity amount as a lump sum at maturity. 

The remaining amount can only be used for buying the annuity from SBI Life Retire Smart.

• Or finally, you can choose to extend your policy term. 

SBI Life Retire Smart policy gives you the option to use your maturity amount to buy annuities from any other insurer if you do not want to buy an annuity from SBI Life. 

Analysis of SBI Retire Smart Plan Maturity Returns:

Internal Rate of Return (IRR) is the effective annual rate of return that you will get if you buy the SBI Life Retire Smart policy. 

Maturity value is 101% of total premiums paid:

The minimum guaranteed value under this policy is 101% of the total premium paid. You will get this maturity benefit in case the premiums that were invested by SBI Life Retire Smart ended up giving a return less than this guaranteed amount. From the table below you can see that the annual return you will get is .076%. But there is a catch. In reality, you will be making less than this annual rate of return. This is because premium allocation charges and policy administration charges will also be levied on you each year. After deducting these charges, the annual return that you will make will be less than even .076%. The premium allocation charge will be between 2.5% and 5.75% during your premium payment period.  The policy administration charge will be between Rs 25 and Rs 75 per month.

If the policy generates an annual return of 4%: 

The policy brochure of SBI Life Retire Smart policy assumes that the investments of your premiums in their funds are likely to generate an annual return of between 4% and 8%. If the policy generates a 4% annual return, then as per the calculation shown below you will realize an annual rate of return of 3.62%. Again, after factoring in the premium allocation charges and policy administration charges you will realize an annual rate of return of less than 3.62%.

If the policy generates an annual return of 8%:

If the policy generates a rate of return of 8% annually, as per the calculation shown below, you will realize the annual rate of return of 7.4%.

After deduction of premium allocation charges and fund administration charges, you will realize an annual return of less than 7.4%.

While 7.4% is not too bad, for 25 years and the equity risk considered, it is 

PPF vs. SBI Life Retire Smart Comparison Review:

Let’s look into an alternative for the SBI Life Retire Smart Policy. 

Instead of buying this policy, you choose to invest in Public Provident Fund (PPF) and buy a term insurance plan for life cover. 

This investment you do for meeting your income needs after retirement. 

The term insurance plan will give you the same insurance coverage that you will get under your SBI Life Retire Smart policy but at a much lesser premium charge.  

The amount that you save on premium, you can invest in PPF. The prevailing interest rate for PPF for the 2021-22 Q4 is 7.1% p.a. 

So what will be your return if you invest ₹1,00,000 annually for the next 25 years in PPF? 

Find out in the table below. 

The returns from PPF are guaranteed by the Govt. of India. 

And you will be able to withdraw this amount in a lump sum. 

This ₹68.7 lakhs can provide you an annual income of 2,56,657.70 (64,16,442/25) for the next 25 years, even if you do not invest it anywhere.

Another advantage of PPF is that the investments and the maturity benefits of PPF are completely tax-free u/s 80C of the Income Tax Act. It has the well-known EEE Tax Exempt status. 

Now let’s compare the SBI Life Retire Smart with an equally risky investment instrument. 

ELSS Mutual Fund vs. SBI Retire Smart Comparison Review:

In this alternative, you can choose to invest in an ELSS mutual fund and a term insurance plan. ELSS mutual funds invest in stocks. The advantage of this alternative is that it can give you very high returns. The disadvantage is that there are no guaranteed returns that you will get from investments in ELSS. ELSS mutual funds’ returns depend on the performance of stocks that they invest in. So this alternative is good for your retirement planning only if you are a high-income earner. In case the ELSS you invest in ends up giving high returns, you can have a very comfortable retirement income. In case your ELSS investments give a low return, you should still have enough savings to meet your retirement needs without any difficulty.  

We can assume that it is highly likely that an ELSS investment can give you an annual return of at least 12%. At this annual rate of return, Rs 1,00,000 invested annually for 25 years will grow to Rs 1,33,33,387. You will get this amount after a deduction of 10% long-term capital gains (LTCG) tax. 

Verdict:

To achieve financial freedom in your retirement, stay away from policies like the SBI Life Retire Smart Plan. 

This is not a Smart policy for planning your retirement and meeting your life insurance needs. If you are a conservative investor, the Smart option for you will be PPF plus a term insurance plan. 

If you  have a better tolerance for investment risks, the Smart option for you will be ELSS plus term insurance.

But if you have already bought this policy, 

How to Surrender your SBI Life Retire Smart Plan?

• Surrender during the Free-look period

You can surrender your policy within fifteen days of receiving the policy, without incurring any charge. You can also surrender your policy within 30 days of receiving it, without incurring any charge, if you bought the policy through an online channel or any other distance channel. 

• Surrender after the Free-look period:

You can also surrender the policy any time you want. You will get the amount to which your invested premiums have grown, after deduction of surrender charges. There is a lock-in period of 5 years in this policy. 

This means that in the first five years of the policy you cannot withdraw any money from this policy. So if you surrender the policy within the first five years, you will need to wait till the end of five years for getting your money back. 

Conclusion:

SBI Life Retire Smart is presented as a retirement plan. 

But considering the benefits, and the alternatives, it is clear that it is a  well-presented below par product. 

Neither a reliable insurance plan nor a retirement plan. And for you, as a  long-term investor, it would be better for you to go for the alternatives rather than fall for such products. 

Consult your financial advisor, chart out a retirement plan so that you can achieve real financial freedom that you can 100% depend on. 

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