WHAT ARE MUTUAL FUNDS WITH INSURANCE COVER?

Did you know that your Systematic Investment Plan (SIP) could also provide you with an insurance cover? Currently provided by three companies in the market, it is a product that gives you the flavor of equity fund investment along with a free life cover.

Mutual Fund investors can get in-built insurance cover by investing in Mutual Funds through systematic investment plans (SIPs) called by different names, SIP Plus, Century SIP or SIP Insure.

WHAT IS MUTUAL FUND SCHEME WITH INSURANCE COVER?

“The idea of a SIP Insure Insurance cover is that it acts as a bundled product allowing you to systematically save for your long-term financial goal and in the event of an unforeseen circumstance, where the nominee becomes the recipient of a free life insurance cover.” This is subject to certain conditions like the fact that it will be a group insurance cover and not an individual one. Further, the tenure of the SIP has to be for a minimum tenure of 36 months and the facility would only be available with few select schemes of the mutual fund house. 

HOW MUTUAL FUND SCHEME WITH INSURANCE COVER WORK?

Once you have decided on the SIP amount, then life cover in the first, second and third year onwards will be a specific multiple of the SIP amount, which could be 10, 20 and 30 times, respectively. For example, assuming the monthly SIP is Rs 1000.

The table below shows the multiple of the SIP amount for 3 years.

SIP WITH INSURANCE COVER SCHEME

ELIGIBILTY FOR LIFE COVERS IN SIP IN MF’s:

The validity of the bundled insurance cover depends on the age brackets and differs with the companies. Anyone between 18 years and 51 years can enroll for such an insurance facility. In case of multiple holders in a scheme, only the first unit holder will be eligible for the insurance cover. There is no requirement of medical tests but a declaration of good health needs to be made. The life insurance is in the form of a group term insurance where the mortality charges to provide for the protection is borne by the fund house. The death claim is to be paid by the life insurance directly to the nominee. 
 

BOUNDARIES OF LIFE COVERS IN SIP IN MF’s:

The maximum life cover varies across mutual fund houses; it can be either Rs 21 lakh, Rs 25 lakh or Rs 50 lakh across all schemes, plans and folios taken together. Also, the maximum age till when the coverage is provided varies. It can either be 55 or 60 years of age. There's no upper limit for the SIP tenure. One can also opt for Perpetual SIP, however, the insurance cover ceases when the investor attains 55 or 60 (depending on mutual fund house) years of age or when the committed tenure selected by you reaches maturity. 

WHAT IF ONE WANTS TO EXIT IN MID-WAY?

One can stop the SIP anytime and not necessarily run it till the original decided tenure. On exiting after 3 years from the date of allotment of the units, there is no exit load. Within 1 year, the exit load is 2 percent of applicable net asset value (NAV), i.e., of the fund value, and if the units are redeemed after 1 year but up to 3 years from the date of allotment, then 1 percent is the cost that one pays. Partial withdrawals, full exit or stopping of SIP will result in ceasing of the life insurance cover. 

WHAT ONE SHOULD DO: 

Not all schemes of the fund house are eligible for the SIP plus insurance facility. If there's a scheme that has been consistently performing well with a good long-term track record, one could consider opting for this facility. If the performance dwindles later on, exit, do not stay invested just for the free insurance. Sector or thematic funds should, however, be avoided. 

Do keep in mind that the life cover ceases even in case one makes partial withdrawals. So, one has to carefully enroll for such a facility and link it to a specific long-term goal. Further, the maximum life cover is capped, most financial planners suggest having a life cover of at least 10 times of one's annual income. Therefore, it's better to keep your insurance and investments separate unless one wants to top up existing coverage.

You can use GIIS Financial tools or Our Android App  for Investment, tracking and Asset allocation planning. 

*Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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