Name of the product
SBI Life Smart Scholar
What do you get
Like any other child Ulip, this is also a type II Ulip that promises both the sum assured as well as the fund value to the nominee upon death of the policyholder. The beneficiary will get the sum assured immediately upon death of the policyholder. Subsequently the insurer waives all future premiums and invests them on behalf of the deceased. On maturity the beneficiary gets the fund value.
Watch out for
The death benefit is higher of the sum assured or 105% of all the premiums paid. So if the sum of all the premiums is higher than the sum assured, the difference will be met by dipping into the fund value. For instance, let’s consider a plan of 20 years with sum assured of Rs15 lakh and an annual premium of Rs1 lakh. Now if the policyholder dies in the 16th year then his death benefit will come to Rs16.8 lakh which is 105% of all the premiums paid and is higher than the sum assured. In this case the difference of Rs1.8 lakh will be met from the fund value. While having a death benefit of at least 105% of all the premiums paid is a regulatory requirement, insurers don’t dip into the fund value to meet this criterion. Typically they charge a higher mortality cost.
Also, with this plan you get loyalty additions typically every third year if you choose a term of eight years or more. The loyalty addition is 1% of the average fund value of the last 24 months.
The premium allocation charge, which is a straight deduction from the premium that you pay, starts at 6% in the first year and subsequently goes down to 1% in the 10th year and eventually becomes zero. The policy administration charge is Rs50 per month and the fund management charges range from 1.35% for equity-oriented funds to 0.25% for debt funds. The mortality charge depends on the age, term and sum assured that you choose.
Over a 20-year horizon, assuming a 35-year-old takes a policy with Rs1 lakh as premium for a sum assured of Rs15 lakh, the maturity value at the end of 20 years comes to Rs.47.93 lakh assuming the fund grows at 10%. This means the internal rate of return (IRR) of this policy is 7.74%.
Mint Money take
Only on the basis of comparing the IRR, this is by far the cheapest child policy of the 12 policies that Mint Money has reviewed. This is because the mortality charge includes only the cost of the sum assured chosen and does not factor in the death benefit as mandated by the regulator. Hence the mortality costs are lower. Go for this child plan if your child is very young.