PremiumMany people in the populace may be looking at starting systematic investment plans (SIPs) in mutual funds to benefit from the steep correction in equities. Some may also be thinking of buying or enhancing the life insurance cover as the world grapples with the covid-19 pandemic which has emerged as one of the biggest threat to human life and health in recent history.
But many do not know some mutual fund houses offer life insurance for those investing in their SIPs. Mutual fund houses have varying names for such products. Like ICICI Prudential Mutual Fund calls SIP with life insurance cover as SIP Plus, Aditya Birla Sun Life calls it as Century SIP while Nippon India calls it SIP Insure. These are basically group insurance policies which are provided free of cost to SIP investors by the fund houses.
“The idea is that it acts as a bundled product with no additional cost allowing a retail investor to save systematically for long term financial goals in a disciplined manner and at the same time, if there were an unfavorable event with the unit-holder, the nominee becomes recipient of the life cover proceeds," said ICICI Prudential Spokesperson.
THE OFFER
It is a free insurance cover for which one can opt for while starting an SIP. It is mostly provided on all equity and hybrid schemes of the fund house. Most fund houses offer SIP insurance to people in the 18-51 age bracket investing in eligible schemes. No health checkups are required as these are group policies. The insurance cover is valid till 55 years of age. So, if an investor starts a 10-year SIP at the age of 51, the insurance cover will be available till 55 years of age. In case of Century SIP offered by Aditya Birla Sun Life Mutual fund insurance coverage is available till 60 years of age.
THE COVER
The insurance cover is only available in case a person takes an SIP with a minimum tenure of three years. If the SIP is stopped in between, the cover will cease to exist. Insurance coverage will also stop in case of part redemption or switches from the scheme. However, if the SIP is stopped after 3 years, then the cover will continue till the maximum eligible age for coverage.
The amount of coverage provided depends on the amount of monthly SIP. For example, in case of SIP Plus offered by ICICI Prudential Mutual Fund, the insurance cover is equal to 10 times the SIP amount and increases to 50 times in the second year and goes up to 100 times in the third year. Most of the fund houses offer a maximum insurance cover of ₹50 lakh across all schemes, plans or folios of the fund house.
So, if the monthly SIP is ₹1,000 then the insurance cover for the first year will be 10 times higher at ₹10,000, for second year it will be equal to ₹50,000 and in the third year the coverage will go up to ₹1 lakh.
THE PROCESS
While filling up the form one simply needs to go for the insurance option. While in case of claim, the nominee will have to approach the insurance company directly.
SHOULD YOU OPT FOR IT?
The life insurance cover comes free so, if you are planning to invest in the scheme of the fund house you can opt for it.
However, this shouldn’t be the basis of you investing in the fund. “Investors should choose a fund basis its past performance and their own risk appetite, investment horizon, life goal etc. While it’s a good feature to have on your investments, investors should not get swayed by it and must not base their choice of fund on this feature alone," said Naveen Kukreja, chief executive and co-founder, Paisabazaar.com, a financial services providing company. Also, you shouldn’t depend on this life insurance cover.
“This term insurance should be completely independent of the investments you make for your life goals. So, while it’s a good add-on feature that investors may opt for, one should not depend on it and have a separate term insurance policy that should be kept active through timely premium payments," said Kukreja.
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