SBI Life Flexi Smart: Why push a product with little value?
SBI Life is seeking media support to publicise the one year old SBI Life Flexi Smart variable insurance plan. It seems to be a desperate attempt to entice those who put money in traditional products
The PR agency of SBI Life has just sent us an email to help readers understand the one year old SBI Life Flexi Smart product. This has left us bemused. Is the company desperate to cash-in on the growing trend of traditional products and position variable insurance plans (VIP) as some better option? Is it a rude joke on customers who are already becoming worse off by shoving hard earned money on traditional products? The product is called "Flexi Smart", but it is targeted for the naive investor. It would have been understandable if SBI Life was trying to promote the SBI Life Annuity Plus product which was launched few months ago with competitive annuity rates.
Over a year ago SBI Life launched a variable non-participating insurance plan, "Flexi Smart Insurance". This variable insurance plan (VIP) was a new identity (after revamping) given to the banned toxic universal life policy. VIP combines the worst of both-ULIPs and traditional plans. The charges are transparent like those of ULIPs. It is 27.5% in the first year; 7.5% in the second and third years and 5% thereafter. There will also be a risk premium on mortality charges based on the policyholder's age, to cover the sum assured-which is 10 to 20 times of annualised premium. The heading of the product brochure is "No pain, only gain". You should read it as "No gain, only pain".
It was astounding to read an article one year ago in a leading business newspaper The Economic Times, which tried to project VIP as best of ULIP and traditional plan. It was deplorable that the article quoted SBI Life Actuary saying that the product interest rate works like a bank account. Which bank you walk in today will take your Rs100 and give you deposit receipt of Rs72.50? It can only happen with a VIP product from an insurance company. Even LIC Bima Account I and II (also VIP) will not break-even in five years.
The investments are opaque like traditional plans and will be mostly in the debt market and hence, will fetch low returns. The SBI Life Flexi Smart plan provides a guaranteed annual interest rate of 2.5% which is absolutely pathetic. The carrot offered to lure the customers is 7.25% interim interest rate for 2012-13. The truth is that the interest rate is net of all the astronomical charges!
The product offers flexibility of a premium holiday option, facility of increasing or decreasing the sum assured as per the changing needs and an option to top up premium. The premium holiday option offers the flexibility of not paying the premium for one to three years after completion of five annualised premiums. Many ULIPs offer a limited premium payment term wherein the policy remains in force until the policy term, without the payment of premium. The flexibility of increasing the sum assured is not allowed after age 50; the cost of medical expenses is to be borne by the life assured and it will not be allowed if the policyholder has already exercised the option to decrease the sum assured.
Needless to say, the increase in sum assured will be accompanied by increase in risk premium (mortality charges). Neither the increase nor decrease in sum assured will reduce the premium amount. The death benefit will be the sum of the policy account balance and the sum assured. The maturity benefit will be the terminal interest rate along with the balance in the policy account.
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