Protecting investments

Insurance cover for long-term goals

What is SIP with insurance?

A few mutual fund houses are offering free, optional, in-built insurance cover to their investors based on their systematic investment plan (SIP) contributions and tenure.

The cost of insurance is borne by the fund house. The objective is to encourage their investors to continue their SIP contributions as well as stay invested for the long term.

The add-on life cover would help investors achieve their crucial financial goals in the event of the unfortunate death of the investor. Insurance cover usually starts with the commencement of the SIP without need for medical tests.

Eligibility criteria

Investors aged between 18 and 51 years at the time of investment are eligible for the SIP plus insurance scheme.

In case of multiple holders, only the first holder will be eligible for the insurance cover. Examples of products on offer are ICICI Prudential SIP Plus, Aditya Birla Sun Life Century SIP and Nippon India SIP Insure. Maximum life cover on offer is ₹50 lakh.

How it works

Fund houses place different terms and conditions regarding the minimum and maximum tenure for availing the SIP plus Insurance bundled product. The continuity of the life insurance cover is typically capped at 55-60 years of age. The cover terminates as the investor reaches the maximum age. The value of cover is a multiple of your SIP instalment: 10 times for year 1, 50 times for year 2, and 100-120 times for year 3. A higher SIP amount gets you higher cover.

Is the combination worth it?

The primary objective of investing in mutual funds is to achieve one’s financial goals and create wealth as per one’s investment horizon, risk appetite and asset allocation strategy.

Hence, one should invest in the mutual fund schemes offering free life cover only if the schemes have a track record of beating their benchmarks and peer funds in the past and have potential to continue to do so in the future.

The availability of free life cover should never influence the decision to invest in or redeem these funds.

Investors should also adequately enhance their life covers through regular term insurance plans at periodic intervals without factoring in the free life cover provided by the bundled MF plus insurance products.


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Printable version | Jul 10, 2020 10:27:34 AM |

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