The core desire or financial goal of every breadwinner is to provide for their family even in their absence.erlying fund earns @ 8%
SBI Life Smart Privilege Plan is a unit-linked investment insurance plan (ULIP) specifically designed for this purpose. At least that is how it is presented to the investors.
Is it true that SBI Life Smart Privilege Plan is a smart solution for your financial goals and needs?
In this article, we are taking on the SBI Life Smart Privilege Plan review.
In this Article:
1. Eligibility Conditions of SBI Life Smart Privilege Plan
2. Other Features of SBI Life Smart Privilege Plan
3. Fund Options In SBI Life Smart Privilege Plan
4. Benefits of SBI Life Smart Privilege Plan
5. SBI Smart Privilege Plan Returns Review
6. Charges in SBI Life Smart Privilege Plan
7. Pros of SBI Life Smart Privilege Plan
8. Cons of SBI Life Smart Privilege Plan
9. Comparing SBI Life Smart Privilege Plan against PPF
10. Comparing SBI Life Smart Privilege Plan against ELSS Mutual Fund
12. How to Surrender Your SBI Life Smart Privilege plan?
By the end of this review, you will have absolute clarity on whether you should buy the SBI Life Smart Privilege Plan or not—the actual benefits from the policy. And whether or not you have alternatives that are better in every aspect.
Without any further ado, let’s start with the eligibility and other features of the SBI Life Smart Privilege plan.
Eligibility Conditions of SBI Life Smart Privilege Plan
SBI Life Smart Privilege is a long-term product. The lowest policy term available is 5 years, and it differs based on the different plan options and eligibility criteria.
The table below shows the different eligibility criteria for different plan options and other features of the SBI Life Smart privilege plan.
Other Features of SBI Life Smart Privilege Plan
- Policyholders have the flexibility of choosing to pay the premium either throughout the policy term or for a limited period or through a single payment.
- The premium allocation charge stops from the 6th policy year onwards.
- If the policy is in force, loyalty additions start from the end of the 6th policy year.
- The policyholder gets the option of unlimited free switches between the available 11 funds.
- Tax benefit under section 80C of the Income Tax Act, 1961.
- SBI Smart Privilege offers a range of 11 different funds to invest in.
Fund Options of SBI Life Smart Privilege Plan
SBI Life Smart Privilege plan gives the investors 11 different fund options to choose from.
These funds range from low to medium risk bond funds to high-risk pure equity funds. The different funds offered by the SBI Life Smart Privilege plan are shown in the table below.
Benefits of SBI Life Smart Privilege Plan
Since SBI Life Smart Privilege is a ULIP policy, the policy benefit is either death benefit or maturity (read survival) benefit.
a) Death Benefit: On the unprecedented demise of the policyholder while the policy is active, the beneficiary or nominee will receive the highest of the below:
- Fund Value as on the date of death intimation or
- Basic sum assured less APW (Applicable Partial Withdrawals), or
- 105% of total premiums received up to the date of death less APW
In the case of minor lives, the date of commencement of policy and date of commencement of risk can be the same and the policyholder/proposer can be parents or legal guardian, which shall be as per board approved underwriting policy.
The nominee or the beneficiary (legal heir) has the option to receive death benefit by choosing from the 2 options available.
1. Receive death benefit as a lumpsum or
2. In installments over 2 to 5 years under “settlement option” as yearly, half-yearly, quarterly, or monthly payouts as required. (During the settlement period, the policyholder has to bore the investment risk in the investment portfolio).
b) Maturity Benefit: On surviving the policy term, the policyholder will receive the accumulated fund value as a lump sum.
Let’s take a deeper look into the maturity benefits of SBI Life Smart Privilege, and analyze its effectiveness.
SBI Smart Privilege Plan Returns Review
We have seen that the SBI Life Smart Privilege plan offers 11 different funds for the investors to choose form.
Since it is a given that equity funds have the potential to deliver higher returns, let’s take an example.
Let’s assume you buy the SBI Life Smart Privilege plan with a policy term of 15 years and invest ₹6 lakhs per annum. And 100% of your exposure is to only the equity fund under SBI Life Smart Privilege plan.
The returns illustration from the official SBI Life website is as shown in the table below.
From the official SBI Life page, the maturity benefit illustration for the SBI Life Smart Privilege plan suggests that the policyholder will earn a maturity benefit of ₹1.57 Cr.
This return is by assuming that the underlying fund earns @ 8% CAGR. However, it is not the IRR earned by the policyholder. If we consider the different charges levied by the policy, the actual return rate in the hands of the policyholder is only 6.74%.
For a long term investment of 15 years, and a big capital of ₹6 lakhs per annum, a return rate of 6.74% is below par and mediocre.
Charges in SBI Life Smart Privilege Plan
Like any other ULIP, the SBI Life Smart Privilege plan comes with a range of charges hidden under its benefits.
Here is the list of different charges of the SBI Life Smart Privilege Plan that may affect your returns.
- Premium Allocation Charge: It is charged at 2.5% of the premium amount throughout the first 5 years of the policy term.
Policy Administration Charge: There is no policy administration charge under the SBI Life Smart Privilege plan as of now.
Fund Management Charges (FMC): The policy levies a predetermined percentage of the fund value as fund management charge every year of the policy term. This percentage of FMC varies for each category of funds. For example, equity funds incur a 1.35% charge per annum, Bond funds incur a 1.15% charge per annum, and so on.
Discontinuance Charge: Discontinued policies incur a charge as a percentage of the fund value in a staggered manner. This percentage differs for each year for different policy options. However, for the 5th policy year, there is no discontinuance charge.
Partial Withdrawal Charge: The policyholder gets 2 free partial withdrawals in the same year. For partial withdrawals above and beyond this limit, the policyholder will be charged ₹100 per withdrawal.
Switching Charge: SBI Life Smart Privilege allows unlimited free switches between funds.
Premium Redirection Charge: There is no premium redirection charge in the SBI Life Smart Privilege plan as of now.
Mortality Charge: It is deducted on the 1st business day of each policy month from the fund value by the cancellation of units. Mortality charge varies depending on the age of the policyholder and sum assured.
Pros of SBI Life Smart Privilege Plan
A. Tax Benefit – By purchasing this policy, the policyholder gets tax benefit u/s 80C of Income Tax Act, 1945.
B. Grace Period – This 30 days grace period will be allowed for premiums paid yearly, half-yearly and quarterly. Whereas, only 15 days will be allowed in the monthly premium phase.
Cons of SBI Life Smart Privilege Plan
- Premium top-up facility is not allowed in this policy under any circumstances.
- Under any circumstances, the policyholder cannot take a loan against this policy
- The funds under SBI Life Smart Privilege plan lack transparency that is offered by the standard mutual funds regulated by SEBI.
- The returns offered by the SBI Life Smart Privilege plan are below par.
But don’t take my word for it. Let’s compare how SBI Life Smart Privilege will fare against different investment options.
Comparing SBI Life Smart Privilege Plan Against PPF Returns
We calculated that the SBI Life Smart Privilege offered only 6.74% IRR, even if the underlying funds earned 8% CAGR in the illustration above.
Can assured returns from PPF give better returns than the SBI Life Smart Privilege plan?
Let’s assume that the policy holder is investing the same ₹ 6 Lac annually for 15 years in PPF. The prevailing PPF interest rate for Q2 2021-2022 is 7.1% p.a.
In such a case, by the end of 15th year the policyholder will receive ₹1.63 Cr. In comparison, it is approximately ₹5 lakhs better return.
However, there is a caveat. In PPF, one can only invest ₹1.5 lakhs per annum while also enjoying the EEE tax benefits and assured returns.
See the compounding table below.
In comparison with the SBI Smart Privilege, the maturity amount of PPF may look very less. However, it is very evident that the return rate of PPF—7.1% pa— is comfortably higher than the IRR of SBI Smart Privilege Plan @ 6.74%CAGR.
Moreover the returns that is completely tax-free and virtually risk-free. Whereas, the performance of the SBI Life Smart Privilege Plan is not guaranteed, and depends on the fund performance or the fund manager’s performance day in and day out.
PPF does not offer life cover like SBI Life Smart Privilege Plan. But alternatively, you can buy a term insurance plan for the same sum assured but far less premium.
If you haven’t made use of PPF yet, PPF + a term insurance policy is an alternative investment option every conservative investor should definitely look into before even considering SBI Life Smart Privilege Plan.
Comparing SBI Life Smart Privilege Plan Against ELSS Mutual Fund Returns
Since the SBI Life Smart Privilege plan is a ULIP policy, it will be only fair to compare its return against another equity investment.
Let’s consider the same investment of ₹6laksh annually for the same term of 15 years as we did with the SBI Life Smart Privilege plan. We are assuming a very conservative 12% CAGR for the ELSS mutual fund.
And more importantly, the investment risk level is the same as SBI Life Smart Privilege Plan, since both are market-linked investments.
In the SBI Life Smart Privilege plan review of benefits illustration, the policy had the highest probability of giving a return of only ₹1.57 Cr.
But for the same investment, an investor will receive almost ₹2.5 Cr at the end of the 15th year will be. I have to remind you, this is a conservative assumption for an ELSS mutual fund.
In comparison with ELSS (12% CAGR), there is a huge difference in the maturity amount. The difference is approximately ₹93 lakhs.
And again, ELSS Mutual Fund is purely an investment instrument. It does not offer life cover like SBI Life Smart Privilege Plan.
However, you can always buy a term insurance plan for the same life cover. Term insurance policies offer a higher sum assured amount for far less premium.
This combination of ELSS Mutual Fund + Term Insurance is a better option than SBI Life Smart Privilege Plan for a risk-tolerant investor.
Considering and comparing the alternative options in all the aspects, it’d be wise for an investor to Not Invest in the SBI Life Smart Privilege plan.
PPF investment with a Term Insurance plan is better alternative for investors with no or lesser risk tolerance.
On the other hand, the ELSS Mutual Fund with Term Insurance plan is a better alternative for investors with a certain level of risk tolerance and investment discipline.
One may very well say that the SBI Life Smart Privilege plan has the potential to deliver higher returns. It is true, but that remote possibility is not evidence of probability.
Consider this, the SBI LifeSmart Privilege Plan is a long-term commitment of at least 5 years. Even if you choose to discontinue your policy, your investments will be moved to the Discontinued Policy Fund, earning a bare minimum of 4% per annum.
There is no systematic compulsion on the policy’s fund manager to perform at his best all the time. But with ELSS mutual funds, the investor can invest in a different fund at any time. This compels the fund managers to deliver better returns consistently.
If you have already bought the SBI Life Smart Privilege plan, you may want to consider surrendering it. However, it is always wise to consult your financial or investment advisor to plot the optimal strategy that fits your requirements.
How to Surrender Your SBI Life Smart Privilege Plan?
i. Surrendering During The Free-look Period:
This policy has a free look period of 15 days if the policy is bought physically and 30 days if the policy is bought via digital marketing.
ii. Surrendering After The Free-look Period:
You can surrender the policy at any time during the policy term, once surrendered the policy cannot be revived
Procedure to surrender your SBI Life Smart privilege Plan:
If the policyholder wants to surrender his/her life insurance policy, the policyholder needs to submit reason(s) for policy surrender and the surrender form needs to be submitted at the nearest SBI Life Insurance Branch, along with the following documents. They are as follows –
- Original policy documents
- Cancelled cheque with the policyholder’s name on it
- In case the cancelled cheque does not have a pre-printed name, account number, or a new account is mentioned on the cheque, then the passbook copy/bank statement having the pre-printed name and the account number is required
- ID proof (PAN Card, Aadhaar Card, Passport, Driving License, Voters ID)
- Policy surrender or cancellation form
- Contact details
SBI Life Smart Privilege plan is an attractive ULIP policy for an uninformed investor.
But a good investor will be skeptical about everything he invests in until there is a conviction in them.
The purpose of this SBI Life Smart Privilege plan review is to help you find that conviction before you make any investment decision. The illustration of the SBI Life Smart Privilege plan benefits and the illustration of the returns from the alternate options is evidence enough.
It is not beneficial enough for your time or investment to Invest in SBI Life Smart Privilege Plan. Think twice and again before you invest in any ULIP product and consult a financial advisor before you make that final call.
Finally, if you are still not clear about how to invest your savings: Sign-up for our free 30-minute consultation by clicking the button below.