Should you buy SBI Life’s policies?

SBI Life has been gaining market share rapidly in the last one year. It now holds 21.7 per cent share in the market, up from 18 per cent in June last year.

The company attributes market share gains to higher sales from agents and its bancasurance channel.

It’s likely that an agent selling SBI Life policy could soon be knocking on your door. Should you buy it?

We take a look at SBI Life’s top selling plans — SBI Life Smart Wealth Builder, SBI Life Smart Elite and Smart Bachat — and compare with similar products of their competitors.

Smart Wealth Builder, Smart Elite

In the last one year, life insurers have been aggressively marketing ULIPs as the stock market has been rising steadily. Some top performing ULIPs have delivered 40-50 per cent returns in this period.

This compares favourably with the Nifty 50’s 22.5 per cent and the Nifty Midcap 100’s 37 per cent return. But, funds of SBI Life’s Smart Wealth Builder and Smart Elite ULIPs, have not been among the top performers in most categories shows data from Morningstar.

The Smart Wealth Builder ULIP has seven fund options invest in a mix of equity, debt and money market instruments. In Smart Elite there are four options- which are again a mix of equity and debt.

In the large-cap category, funds in the top-15 list are- Aviva Life’s unit liked PSU fund, Bharti AXA Life’s funds (Build India, Grow Money Plus, Growth Opportunities Plus, Growth Opportunities, Grow Money), Tata AIA Life’s Infrastructure fund, and Birla Sun Life’s Individual Pure Equity fund. These have generated returns of about 27-53 per cent in the last one year.

The category average return among large cap funds in the last one year has been 22.8 per cent. SBI Life’s Equity fund, which comes in the large cap category, has generated return of 20.87 per cent.

The insurer’s Equity Optimiser, Growth, Equity Elite II and Top 300 are in the aggressive allocation category (where about 50-75 per cent is in equity).

Here, the one-year return of similar funds is 19.93 per cent with the highest return generated being 29.6 per cent by LIC’s Market Plus I - Growth Fund.

SBI Life’s Equity Elite Fund II has generated 21.7 per cent return, Equity Optimiser 20.9 per cent, Growth 20.6 per cent and Top 300 fund 20.6 per cent.

SBI Life’s Balanced fund has generated a one-year return of 17.4 per cent versus category average of 16.5 per cent. The top performers (LIC’s - Market Plus 1 Balanced, Money Plus 1 Balanced, Profit Plus balanced; HDFC Standard Life’s - Balanced Managed Investment Life) have generated about 20-23 per cent return.

Investors should however note that unlike in mutual funds where the fund’s NAV on the date of investment and on the date of redemption captures the return, in ULIPs, it is not so.

Charges including - mortality premium, policy administration, switching, premium re-direction charges in ULIPs are deducted by cancellation of units. So, the actual returns for the investor will be lower.

Smart Bachat

SBI Life’s endowment plan, Smart Bachat, launched in January, has also been contributing a chunk to its sales. Endowment plans are popular due to the survival benefit they offer; on maturity, the policyholder gets sum assured plus the bonuses declared till date.

This is a traditional participating plan with a limited premium payment term, where premium needs to be paid for either 5, 7/10 or 15 years.

Anyone in the age of 8-50 years can buy the policy. The maximum term offered is 25 years. The policy has an option where the policyholder can get a lumpsum in addition to the base sum assured for accidental death and total permanent disability.

In case of total permanent disability following an accident, the guaranteed lumpsum will be paid and all future premiums waived.

Then, at the end of maturity of the plan or death of the policyholder, the amount in the fund (which is base sum assured plus all bonuses) will be paid to the nominee.

The Smart Bachat plan’s IRR is not significantly higher than what other endowment plans (4-5 per cent) in the market offer.

Here, a 35-year-old male who pays a premium of ₹1.25 lakh for 15 years for a cover of ₹25 lakh for a period of 25 years, will at the end get about ₹46.5 lakh, which is a return (IRR) of about five per cent (assuming a gross return of 8 per cent).

In the case of accidental death or disablement, the returns from this plan would be higher. But, given the low probabilities of such a situation, it is prudent not to invest money in this plan.

Investors who have multiple long-term goals, should look at equities to generate inflation-beating return.

For life insurance, you should ideally look at the plain-vanilla term plan, and put the rest of your money into a diversified mutual fund.

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