I have an SBI Flexi Smart policy since 2012, with an yearly Premium 50,000 and a term of seven years. Please tell me whether this would give me a better return or I should switch to a mutual fund.
- Harihar
SBI Flexi Smart is a traditional life insurance cum savings plan that provides guaranteed interest rate of 2.50% per annum. This plan will declare interim interest rate at the beginning of each financial year. Apart from this, it may also declare an additional interest rate on 31st March every year.
This policy has high charges.You have already borne major charges under the plan. During first year, this plan deducted 7.50% as expenses and 20% as commissions. Apart from above expenses, this plan has also charged you for providing guaranteed sum assured on death. Expenses reduced to 4.50% and commission rate fell to 3% of the premium received. The expenses will reduce further from fourth year onwards.
It is not possible to say how much money you will make from this policy because there is no information on the bonus declared by it. However, traditional insurance plans typically offer modest returns.
We do not recommend buying insurance plans with savings or investment elements in them. This is because such plans do not do justice to both insurance and investment needs. For example, the policy covers you for 10 to 20 times annualized premium, which comes to 5 lakh to 10 lakh in your case. This is not an adequate insurance cover. That is why we ask our readers to buy term plans to cover their life. Term plans are cheap and you can buy a large cover by paying a small premium. Investing in equity mutual funds is always better to achieve long-term financial goals.
You can consider surrendering the policy. As you have completed three policy years, you will receive 98% of your policy account value.
This article was originally published on November 03, 2015.
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