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An Expensive Mix

SBI Shubh Nivesh is an expensive mix of insurance & investment. Find out why you should avoid such schemes…

My 27-year old friend is thinking of taking SBI Subh Nivesh for Rs 10 lakh. However, I feel he should go for an online term plan and start an SIP in a good mutual fund. I wish to explain this to him. Can you elaborate why he should not go with SBI Subh Nivesh?
-Prasad Kalla

SBI Shubh Nivesh is a unit-linked endowment plan that offers an optional whole life cover. Such plans are a mix of insurance and investment and expensive. For a 27-year-old Rs 20 lakh sum assured works to Rs 59,916 annual premium, including service tax. A term insurance plan for Rs 20 lakh over a 30-year span will work to an annual premium of Rs 3,200. We are illustrating the case with Rs 20 lakh sum assured because of your friend’s age. Subh Nivesh does not offer policy for Rs 10 lakh because it does not meet its minimum premium requirement.

We feel it is best not to combine insurance and investments. There are several reasons that support keeping the two separate. First, Ulips levy charges towards management, mortality and other expenses which means not the entire sum that is paid as premium goes into investments. Next, Ulips lack liquidity. There is a 5-year lock-in and once a premium is fixed it remains so through the tenure of the policy and does not allow you the flexibility to pay less in years when you have no money to pay. Further, Ulips do not provide you the flexibility to exit a bad performing fund and instead invest in a better faring fund; at best you can shift between funds of the same insurer, which restricts choice. Lastly, Ulips have short performance history and track record compared to mutual funds, which also have higher liquidity and transparency. Remember that in the process of emphasising the benefits of investing in mutual funds over Ulips, you should not forget to stress on the importance of life insurance as a risk protection tool. Your friend should go in for life insurance with term plans without compromising on his risk protection needs.

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