Insurance
SBI Life Smart Income Protect: Regrets guaranteed, year after year

The SBI Life Smart Income Protect advertisement claims to give tax-free returns with fine print saying “consult your tax advisor for details”. Find out what kind of returns you can expect and whether the product will really give tax-free benefits?

SBI Life Smart Income Protect is a traditional life insurance plan which gives guaranteed annual payouts of 11% of Sum Assured (SA) over a period of 15 years after plan maturity. While the guarantee itself is insignificant considering that assured returns will be less than 2.5% per annum (pa). A lot will depend on the non-guaranteed bonuses to give decent returns. But, will your returns really be tax-free as claimed in the advertisement?

 

 

There is fine print which says “consult your tax advisor for details”. It seems to be a standard disclaimer from insurance companies which want to claim tax-free returns, but don’t want to be held responsible for it. The ad claims "Delights guaranteed. Year after year". You don't want "Regrets guaranteed. Year after year". Moreover, in this product, SBI Life probably knows that policy term of five and 10 years can never give tax-free returns, but will not make such an open declaration as it helps them to remain vague about it.

 

It is only in the case of a policy term of 15 years that the product will qualify for tax benefits under Section 10 (10D). This is because only in this case the insurance cover is more than 10 times of the premium to be paid. The caveat here is standard health. If you are not healthy, your premium will be loaded and you may not even meet the requirement of tax-free benefit.

 

The Finance Bill 2012 had made it mandatory that the sum assured should be 10 times the annual premiums (the earlier limit was five times) for insurance policies to enjoy the tax benefits on contributions under Section 80C and on maturity under Section 10(10D).

 

The product offers policy terms of five, 10 and 15 years. At the policy maturity the customer will get vested bonuses and terminal bonus, but both are non-guaranteed. The payout period will pay guaranteed 11% of SA every year for 15 years. Considering just the guaranteed payout, the returns will be less than 2.5% pa. Assuming 6% pa non-guaranteed returns during the policy term, the real returns will be less than 4% pa; with 10% pa non-guaranteed returns, the real returns will be 5% pa. This is in sync with traditional products wherein the actual returns will be low.

 

Even 80C tax benefits at entry cannot be claimed in full for SBI Life Smart Income Protect policy term of five and 10 years. If the insurance cover is less than the minimum amount specified, the amount that can be claimed for tax savings under Section 80C reduces proportionately. It means your premium has to be sufficiently higher to be able to claim Rs1 lakh 80C taxable income deduction.

 

For example, a customer of age 33 years buying the product for policy term of 10 years will have annual premium of Rs119,390 for a SA of Rs10 lakh. The SA is only 8.37 times the premium and hence the amount claimed under 80C will be Rs99,929 for premium payment of Rs119,390. But, you will not get any tax benefit on maturity under Section 10 (10D).

 

Read the latest Moneylife cover story (issue dated 21 March 2013) “Pension & Life Plan: Tax-traps?” for some secrets on pension and life insurance taxation that insurers will not tell you about. The magazine will be available in the market on 7 March 2013.

User

COMMENTS

CA PRADEEP AGARWAL

5 years ago

I have previously said that all Co's are fooling genuine investors as well as public at large, but since Govt. is also totally involved in it, then who to stop, it gets its other things done-whether agree or not but it is what is being seen

CA PRADEEP AGARWAL

5 years ago

That is why I am of the opinion that false ads have to stop, but no body bothers, In case the policy is not taken up then the deduction should not be allowed. that is declaration should be filed at the time of return that policy has been taken.

CA PRADEEP AGARWAL

5 years ago

Actually SBI Life will not escape from liability, in case taxable then they have to deduct TDS on Interest paid on the Corpus after 15 years

REPLY

DEEPAK KHEMANI

In Reply to CA PRADEEP AGARWAL 5 years ago

There is no interest payout in Insurance policies so TDS is out of the question!

CA PRADEEP AGARWAL

In Reply to DEEPAK KHEMANI 5 years ago

They are not treating it as interest but in my opinion it is like an annuity which is being repaid in 15 years via 11% PAYOUT and annuity is taxable, so it is very much disputable, no doubt about it and additional is said as benefit being paid after maturity to the insured in case any casualty occurs the 11% paid will be deducted from total amount payable to the beneficiaries.

DEEPAK KHEMANI

In Reply to CA PRADEEP AGARWAL 5 years ago

It is good to have an opinion but as of today as per existing laws No Insurance Co deducts any form of tax when it pays out either, annuity, survival benefits of maturity

Anil Agashe

5 years ago

Insurance cos are cheating is open secret. I also have found that they sale a product at the end of financial year, the premium is paid and then in April the customer declines policy, but still gets tax benefit!

One insurance co had told me pay premium in March and even though the cheque was to be cleared on 2nd April you claim deduction as per the date o cheque and our receipt nothing will happen!

REPLY

CA PRADEEP AGARWAL

In Reply to Anil Agashe 5 years ago

When our Govt.s re biggest cheats, then who stops these companies. Further, have you seen FMCG Companies charging higher and further gms are being reduced in abnormal grammage, so all round theft is going on, though I am expressing the same but terror from them is always there.

CA PRADEEP AGARWAL

In Reply to Anil Agashe 5 years ago

I do agree that insurance cos are cheating and claiming false benefit and in that case, the IT Dept. should take a written declaration under oath that policies claimed have continued and in case of discontinuance, the tax rebate will be disallowed and penalty imposed and their should be no usage of Discretionary Powers.

DB DESAI

5 years ago

This is misselling (as qommented by one reader ) with the permission of the regulators. I feel like doubting that somebody somewhere in the regulatory corridors and govt machinery is willingly allowing these companies to advertise and market their schemes like this for the reasons best known to them. There has to be an institution created and developed by the people who would like to explain these things to the public and sell correct products. I had earlier suggested that MONEYLIFE should seriously think about it.

REPLY

raj

In Reply to DB DESAI 5 years ago

Join Moneylife Foundation and attend our seminars. We have written memorandum to IRDA on health and life insurance issues. Follow up articles can be seen on Moneylife website.

http://www.moneylife.in/article/irda-lif...

http://www.moneylife.in/article/irdas-he...

CA PRADEEP AGARWAL

In Reply to raj 5 years ago

Mr Raj, my mail id is with the authorities and any seminar at Delhi/NCR on the topic will be duly attended, and if we have information.

Zoher Doctor

5 years ago

Informative

HG Sharma

5 years ago

Thanks for this eye opener.While you could save some by highlighting the facts ,can we not think of taking such matters to forums which can prevent such occurrences.

HG Sharma

REPLY

raj

In Reply to HG Sharma 5 years ago

Join Moneylife Foundation and attend our seminars. We have written memorandum to IRDA on health and life insurance issues. Follow up articles can be seen on Moneylife website.

http://www.moneylife.in/article/irda-lif...

http://www.moneylife.in/article/irdas-he...

sreekanth

5 years ago

<> For policies starting on or after 01 April 2012, the maximum deduction under Section 80C allowed is limited to 10% of Sum Assured. The Sum Assured here is plain sum assured without any considerations of bonus. So, in the example given in the article, Sum Assured = Rs. 10 Lakh. So, maximum deduction under 80C = 10% of Rs. 10 Lakh = Rs. 1 Lakh. But the article says, Rs. 99,929 which is wrong according to me. Can the author or someone confirm/clarify?

REPLY

raj

In Reply to sreekanth 5 years ago

you are right. I had considered only two digits (8.37 times). It will come to Rs1 lakh instead of Rs99,929. The person will pay Rs119,390 + serv tax to get Rs10 lakh SA and have Rs1 lakh towards 80C. 1010D will not be allowed and hence payout taxable on exit.

Pradeep R Hattangadi

In Reply to sreekanth 5 years ago

The premium covers only 8.37 times the sum assured hence the proporationate premium for 8.37 is 99,929

sachchidanand

5 years ago

REALLY ASTONISHING How even stste owned Bank's Life policies are defrauding the gullible investor . What IRDA is doing ? Offcourse, it is worthless to expect such things from regulators, be them SEBI or IRDA. keep up the good work

Pradeep R Hattangadi

5 years ago

SBI also advertises for its Tax Saving Deposits for 5 years. The ad states the returns of 17.39% and considers the tax deduction that one gets on the principal amount under Sec 80C. The tax savings @30% is reduced from the capital to show the yield on investment. The ad however conveniently forgets that interest earned on the deposits are liable to tax. Surprisingly, no one has objected to it. is this not a case of mis selling?

REPLY

raj

In Reply to Pradeep R Hattangadi 5 years ago

Yes, we had written about it last year - http://www.moneylife.in/article/sbi-tax-...

Zoher Doctor

In Reply to Pradeep R Hattangadi 5 years ago

This is mis-selling ofcourse

DEEPAK KHEMANI

5 years ago

Kudos to you Raj and Moneylife for bringing out such details for the public in general who are unaware of these rules regarding 80C and 10(10D). People will assume that they are buying a tax Free product but will regret it at a later date. Keep up the good work

REPLY

raj

In Reply to DEEPAK KHEMANI 5 years ago

thank you

Francis Xavier

In Reply to raj 5 years ago

Dear Mr.Raj,

Is sum assured 5 times of annual premium enough for section 80 C benefit for insurance policy bought before April 2012? Pls adv.

raj

In Reply to Francis Xavier 5 years ago

correct

Pankaj Kapadia

In Reply to DEEPAK KHEMANI 5 years ago

sbi insurance after sbi bank have shown their only known method of cheating tax savers towards financial year end. IRDA listening?

Third-party motor insurance premium hike may be 40%. Is it justified?

Third-party (TP) claims are undoubtedly a drain on insurance companies, primarily due to unlimited liability amounts, but should IRDA base the TP premium pricing on more than just engine cc? Your TP premium may be subsidising the commercial vehicles responsible for insurance companies’ losses

The Insurance Regulatory and Development Authority (IRDA) has proposed an increase of nearly 40% in third party (TP) motor insurance for private cars in its draft on revision of premium. If you drive a car that’s below 1000cc (Tata Nano and Maruti Alto, for example), your TP premium may increase by 85%, come April 2013. High increase in premium for entry-level cars may be because these cars are purchased by those who have just acquired their driving skills and the possibility of higher TP claims arising from them. Surprisingly, the hike will be only 1.4% for cars such as Hyundai Santro and Maruti Swift, whose engines are between 1000cc and 1500cc. For cars over 1500cc, including Fiat Punto and Ford Ikon, the hike will be of 43%.
 

According to Mukesh Kumar, Head-HR, marketing and strategy planning at HDFC ERGO, “The vehicles in the private car segment with engine capacity exceeding 1500cc are extensively used, usually for longer distances and, therefore, result in higher risk exposure. This leads to relatively high TP losses due to which the hike in premium is justified.”

For goods-carrying vehicles, there is a proposed decrease in TP premium for those not exceeding 12,000 kg. There is hike of 107% for those vehicles in the 12,000-20,000 kg range. Mukesh Kumar says, “The proposed hike is still inadequate for this class, judging from the loss experience. Vehicles with higher tonnage are used for longer distances, mostly inter-state. Therefore, the risk exposure is higher.”

According to Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General, “The TP business is long-tailed, with no upper limit on the claim amount and no limit for when the claim can be filed. This makes risk evaluation and therefore, pricing extremely complicated. Overall industry data may be able to throw light on whether the pricing is adequate to cover the risk. The rate increase is high, but necessary, given the unlimited claim amount for TP. We hope the Motor Vehicle Act is changed to limit the claim amount so that the industry can pass on lower TP premiums to customers.”

Own Damage premiums are based on numerous parameters like car model, location, fuel option, security system and even consider personal data like age, marital status and occupation. The question that one may have is whether engine cc is a good enough parameter to decide the TP premium? There may a need to look beyond the car engine cc to decide the TP premium.
 

For example, geographical area of a private car will have different TP claims experience. For commercial vehicles, there will be more TP claims for those with an all-India permit than those plying in specific areas. Vehicles used 24x7 may have more TP claims. There are specific car makes that may be registered as private vehicles, but are used for commercial purposes and hence have more TP claims. Is it true that going by engine cc is too simplistic?
 

According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Services, “Use of the vehicle and geographical area can help to underwrite the TP risk properly.  Some of my clients’ loaders/excavators and goods-carrying vehicles are registered as public carriers, but ply only within a certain vicinity such as New Mumbai. There is hardly any TP claim. The black-yellow taxis and auto rickshaws have the lowest claim experience in the TP segment.” The proposed hike for auto rickshaw and taxi insurance is 11% and 13%, respectively.
 

According to an industry source, “Many TP claims from commercial vehicles arise from accidents with trucks and tempos with all-India permits. With such vehicles, the risk is higher than with commercial vehicles restricted to a city. The transportation lobby is strong and they are able to keep the TP premium low.”
 

Many insurance companies are keen to underwrite specific commercial vehicles that are “good risk” for their business. Third-party motor insurance is the only segment where the tariffs are set by IRDA. The Authority has made use of the data available with the Insurance Information Bureau for the experience period of the Underwriting Years (i.e. Policy Years) 2007-08 and 2008-09 in respect of number of policies, claims reported and amount of claims paid up to 31 March 2012.
 

The TP liability cover, which is mandatory in India, does not provide any benefit to the insured; however, it covers the insured’s legal liability for death/disability of third party loss or damage to third party property.
 

All stakeholders are invited to provide their comments on this draft proposal so as to reach the Authority, also by e-mail addressed to randip@irda.gov.in, on or before 1  March 2013.
 

Read - Road Accident: Know your financial rights

Save on your Car Insurance

User

COMMENTS

Sanjay Tiwari

5 years ago

One of the ways to control could be start some small amount of co-payment by the Driver / owner. This will make the drivers / owners more responsible on the road. sanjay Tiwari

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