SBI Life Insurance has come out with a new traditional participating plan called SBI Life – Smart Income Protect. Under this plan, you pay a certain premium for 5, 10 or 15 years, and after that the plan pays you a guaranteed amount every year for the next 15 years. You can also choose to get a lumpsum paid at maturity. There is an insurance component to the plan as well.
Returns of SBI Life Smart Income Protect
The returns of this plan are divided into two parts – the guaranteed part and the non guaranteed part.
Let’s look at the guaranteed returns from this plan first. You get 11% of the sum assured every year for 15 years after you have paid for 5, 10 or 15 years based on which plan you choose.
The Smart Income Protect plan page has a very helpful calculator that allows you to input your details and shows you how much your premium is expected to be. The payout is of course 11% of the sum assured so that part doesn’t change.
The non guaranteed part is the sum that you will get as lumpsum based on the discretion of the company, and based on how much profits they have themselves generated. The benefit illustration shows this at 6% or 10%, which is the standard number all insurers pick to show these type of calculations.
I put in some details to calculate premium and payout for a 29 year old who takes the policy without any riders and got the following details. (Click to enlarge)
I have created this spreadsheet for calculating the return on this policy and it shows that if you only consider the guaranteed returns then the IRR of this policy is 2.3%, if you consider the bonus they have shown at 6% then your IRR is 4.01% and if you consider the bonus at 10% then your IRR is 5.30%.
The one thing to note about this IRR calculation is that I have included the value of service tax in the cash outflow as well, and that may change to a higher or lower rate in the term of your policy.
Insurance Component of Smart Income Protect
The plan offers life insurance and then you have the option to choose up to four of the following riders:
- SBI Life – Accidental Death benefit rider (UIN: 111B015V01)
- SBI Life – Accidental Total & Permanent Disability benefit rider (UIN: 111B016V01)
- SBI Life – Criti Care 13 Non Linked Rider (UIN: 111B025V01)
- SBI Life – Preferred Term Rider (UIN 111B014V01)
You have to remember that any such plan will at best partly fulfill your insurance needs, and if you want to really insure yourself then the term plan is the best way to go where you can get a large amount insured with relatively lower premiums.
If you have a term plan, then these type of plans will help you supplement that insurance but on their own, this won’t fully take care of your insurance needs. Other than that, this looks like a fairly standard offer for these type of plans.
Tax Benefits Under Smart Income Protect
The most important tax benefit is under Section 80C, where the premium can qualify for tax deduction within the overall 80C limit. If you choose the Criti Care 13 Rider then that’s eligible for tax deduction under section 80(D).
In the last budget they put in a condition that if the premium exceeds 10% of the sum assured in any year then the premium won’t be eligible for 80C deduction.
The way this plays out in these type of policies is that if you choose a term of 15 years then the premium will be less than 10% of the sum assured but then if you chose a period of 5 years then it will certainly be higher than 10% of the sum assured. I think the 10 year range is somewhere in between but this is something you have to keep in mind if you want the tax benefit.
Look at what the premium is and if it’s greater than one tenth of the sum assured then you aren’t eligible for the 80C deduction.
Now, should you opt for a higher term just because of this reason? That’s a lot harder to answer and you have to also consider that there are so many other things you can buy that will be eligible for 80C deduction that this question could just become irrelevant.
Surrender Value of Smart Income Protect
The surrender value ties in nicely to the question of the term of plan because you really stand to lose a lot if you surrender the plan, and that’s true for all plans in general, and for that reason if you’re making a long term commitment you should be ready to go through it.
In the case of this plan, if you surrender before the lapse of the first two years then you don’t get anything back, and if you surrender after that then you get 30% of the premiums paid excluding the premium paid in the first year so you can see for yourself how much you stand to lose if you surrender the plan. The surrender value doesn’t consider the rider premiums. This is the guaranteed surrender value and then there is a non guaranteed surrender value which is calculated based on factors like demographics and product performance, but I think it’s safe to say that you should expect to lose a lot if you’re not able to go through the term of the policy.
Rebates under Smart Income Protect
There are certain rebates available if you insure over a certain amount as shown in this table.
I think this covers all the main aspects of the policy that I could think of and if you have any questions or think that I’ve left something out then please leave a comment.