Is this your goal to save for your child’s education and secure their bright future?
As a responsible parent, you might want to ensure that your child’s future needs are fulfilled.
Can you certainly protect your child’s future by purchasing this SBI Life Smart Champ Plan?
Let us analyze in detail whether this plan can be relied upon for the Financial Goals related to your kid’s education.
Table of Contents:
What is the SBI Life Smart Champ Plan?
SBI Life – Smart Champ Plan is an Individual, Non-linked, Participating, Life Insurance Savings product.
This plan is designed to protect your child’s future educational needs.
Your child will be able to pursue his/her dreams and ambitions whether you are around or not.
Features of the SBI Life Smart Champ Plan:
- Premium payment method can be a single or limited payment.
- You have the convenience of choosing your premium paying frequency – Yearly / Half-yearly / Quarterly / Monthly.
- Guaranteed Smart Benefits are payable in four equal annual instalments at the end of each of your last 4 policy years.
- Accidental Total & Permanent Disability rider & Waiver of premium rider are inbuilt features in this policy.
- Simple revisionary bonus & Terminal bonus will enhance your smart benefit payout.
- Loan options are available to you as a policyholder.
Eligibility Criteria of the SBI Life Smart Champ Plan:
|Age at Entry||Life Assured Min: 21 years||Max: 50 years|
|Child Min: 0 years||Max: 13 years|
|Age at Maturity||Life Assured Min: 42 years||Max: 70 years|
|Child: 21 years|
|Basic Sum Assured||Min: 1,00,000 (x 1,000/-)||Max: 1 Crore|
|Policy Term||21 minus the Child’s Age at entry|
|Premium Payment Term for LPPT Policy||18 minus the Child’s Age at entry|
|Premium Frequency||Single Premium / Yearly / Half-yearly / Quarterly / Monthly|
|Premium Frequency Loading||Half-Yearly: 51.00% of Annual Premium|
|Quarterly: 26.00% of Annual Premium|
|Monthly: 8.50% of Annual Premium|
|Minimum Premium||Premium Payment Mode||Minimum Premium (exclusive of Applicable Taxes)|
|Maximum premium||Based on the maximum basic sum assured
Benefits under the SBI Life Smart Champ Plan:
It is payable in four equal annual instalments after the child attains 18 years of age until he/she turns 21.
Each instalment of Smart benefits will consist of 25% of the basic sum assured and 25% of the vested simple reversionary bonuses if declared.
Terminal bonus, if declared, will be paid along with the last instalment of the Smart Benefits.
Benefit payable on the occurrence of the insured event:
In the unfortunate event of death or Accidental Total Permanent Disability (ATPD), whichever is earlier, during the policy term, the following benefits are payable,
a.) Immediate lump sum payment – The Sum Assured on the insured event or 105% of the total premiums received up to the date of death or ATPD, whichever is earlier, is paid immediately.
For Single Premium: The Sum Assured on the Insured Event is higher than the basic sum assured or 1.25 times the single premium.
For Limited Premium Paying Term: The Sum Assured on the Insured Event is higher than the basic sum assured or 10 times the annualized Premium.
b.) Waiver of due premiums – No future premium instalments due, if any, are required to be paid. The policy continues to accrue bonuses if declared
c.) Smart benefits (Due) – The due instalment(s) of Smart benefits are payable. Terminal bonus if declared will be paid along with the last instalment of the Smart Benefits.
Other Benefits of the SBI Life Smart Champ Plan:
Option to receive the lump sum amount instead of Smart Benefits:
Option to receive the discounted value of the future due instalment(s) of Smart Benefits plus the Terminal Bonus, if declared, in a lump sum amount during the last 3 policy years.
The discount rate will be 6.25% p.a.
Loans will be available after the policy acquires surrender value.
The policy loan will be limited to a maximum of 90% of the Surrender Value.
Large Sum assured discount:
|Basic Sum Assured (BSA)||Rebate per 1,000/- Basic Sum Assured|
|Limited premium||Single premium|
|1 lakh – 2 lakhs||Nil||Nil|
|2 lakhs – 3 lakhs||3||6.5|
|3 lakhs – 5 lakhs||4.5||9.5|
|5 lakhs & above||5.5||11|
A grace period, Revival & Paid-up of the SBI Life Smart Champ Plan:
Under the LPPT policy,
- 30 days of Grace Period from the premium due date for yearly/half yearly/ quarterly premium frequency are allowed.
- 15 days for the monthly premium frequency are allowed.
A lapsed policy may be revived within 5 consecutive years from the date of the first unpaid premiums.
You as a policyholder will be required to pay all the overdue premiums with interest and any indebtedness outstanding on the date of lapse.
The LPPT policy will acquire paid-up value after payment of at least two consecutive years’ premiums.
The Basic Sum Assured will be reduced (Paid-up sum assured) to the same proportion as to the ratio of the number of premiums paid to the total number of premiums payable as per the term chosen at the inception of the policy.
Paid-up value = Paid-up Sum assured + Vested bonuses & terminal bonus if declared.
Free Look period of the SBI Life Smart Champ Plan:
If the policyholder is not satisfied with the features of the SBI Life Smart Champ Plan, then the policyholder can cancel the policy by providing a written statement to the company.
The policyholder will get a refund of the premium after deducting the charges.
The free look period is 15 days if the policy is purchased directly. It will be extended up to 30 days if the policy is purchased through the distance mode.
Surrendering the SBI Life Smart Champ Plan:
For Limited Premium-Paying Policies, the policy will acquire a Surrender Value only if the policyholder has paid the premiums for at least 2 consecutive years.
For Single Premium Policies, the Policy will acquire a Surrender Value anytime during the policy term.
On surrender, the higher of the Non-Guaranteed Special Surrender Value and Guaranteed Surrender Value is payable.
Advantages of the SBI Life Smart Champ Plan:
- A portion of the Smart Benefits is guaranteed.
- On the occurrence of the insured event, the future premiums are waived & the policy continues to accrue bonus.
- The policyholder has the option to receive the lump sum amount – the discounted value of the future smart benefits of the last 3 policy years.
- Income-tax benefit as per Sec 80 C & Sec 10 (10D) of the Income-tax Act.
Disadvantages of the SBI Life Smart Champ Plan:
- Smart Benefit amount varies year after year as the simple revisionary bonus is a non-guaranteed part of the Smart Benefit.
- The lock-in period is 2 years for surrendering the policy or for a loan option.
You can refer to the policy brochure to know more details about the SBI Life Smart Champ Plan.
Now, we have seen all the necessary details that we need to know about the SBI Life Smart Champ Plan.
Now let’s see whether this plan can help us to create long-term wealth or not to secure your child’s future by calculating the IRR of the SBI Life Smart Champ Plan.
Then let us compare the SBI Life Smart Champ Plan with other alternative investment products to see which gives us a better return in the long term.
Let us analyse the IRR of this policy with an illustrative example below:
|Premium paying term||15 years|
|Policy term||18 years|
|Sum Assured||20 lakhs|
IRR of the SBI Life Smart Champ Plan:
The policyholder pays the premium for their child as they attain 3 years of age until the child attains the age of 17 years.
The Smart benefit payout starts from the age of 18.
Let us see the cash flow in below table & calculate the IRR of the SBI Life Smart Champ Plan.
|At 4% p.a.||At 8% p.a.|
|Age of Child||Year||Annualised premium / Maturity benefit||Death benefit||Annualised premium / Maturity benefit||Death benefit|
The assumed gross rate of return is 4% & 8% for the worst and best-case scenarios respectively from the benefit illustration provided on the SBI Life website.
These are not guaranteed rates of interest as SBI Life Smart Champ is a risk-premium product subjected to market volatility.
The IRR based on a 4% return is 1.92%, which is similar to the Bank savings account return.
The IRR based on an 8% return is 5.19%, which is similar to the bank FD rate of interest.
Both the rate of interest is not an inflation-beating return.
More importantly, it is not a risk-premium return as it gives us lower returns compared to the risks involved in this policy.
SBI Life Smart Champ vs. Other Investments:
As an alternative to the SBI Life Smart Champ, you can invest the money in various investments that can give you a better investment return.
The sum assured in the SBI Life Smart Champ plan is Just Rs. 20 lakhs. Whereas if you opt for Pure Term Insurance, the sum assured could be higher with low-cost premiums.
So, it is always a good idea to consider buying Pure Term Insurance with adequate life cover.
If a 40-year-old male buys Pure Term Insurance for Rs. 1 crore cover, the annual premium would be around Rs. 21,000.
In the above illustration, the annual cash outflow is Rs. 1,35,700.
We can assume the same here.
So, after paying the premium for Pure Term Insurance, the balance amount of Rs.1,14,700 could be invested in other investment instruments based on your risk appetite.
Let us compare the IRR of the SBI Life Smart Champ with other Investment alternatives to get a better idea about whether this policy is worth investing in or not.
SBI Life Smart Champ Plan vs. PPF vs. ELSS:
Your choice of investment needs to be grounded in the risk that you are willing to take; it could be either PPF or ELSS.
Let us try to work out the IRR for the combination of Term Insurance + PPF / ELSS investments.
|Term Insurance + PPF||Term insurance + ELSS|
|Age of Child||Year||Term Insurance premium + PPF||Death benefit||Term Insurance premium + ELSS||Death benefit|
After the completion of the premium paying term in the SBI life Smart Champ plan, the smart benefit pay-out starts.
The same pay-out under the 8% scenario is assumed withdrawn from a debt instrument (6% return) in the last 4 years.
The IRR for Term Insurance + PPF is 5.26% & for Term insurance + ELSS is 8.80%, which are better returns comparable to the returns, provided in the SBI Life Smart Champ Plan.
In addition, you get a life cover of Rs. 1 crore for the next 20 years.
Both from an insurance point of view & investment return the SBI Life Smart Champ Plan lags behind other investment instruments like PPF or ELSS.
SBI Life Smart Champ Plan is a participating traditional child plan.
It offers triple protection in case of eventualities – Immediate Lump sum payment, Waiver of premium & Due instalments of smart benefits.
But in the long run, the educational inflation makes the cost humongous & SBI Life Smart Champ Plan can’t fund this rising educational goal for your child.
After our detailed analysis, we can see that ELSS can give you a better return compared to the SBI Life Smart Champ Plan if you are a risk-tolerant investor.
As the SBI Life Smart Champ Plan did not give us, a good long-term return which is not inflation-beating in the first place.
Shortly, you can also get better returns on PPF if you are a conservative investor.
As for term insurance, you can choose pure term insurance that can give you high-life coverage at a low cost.