Investment Plans 2054 views May 1, 2020

Should You Invest in SIP Linked Insurance Schemes?

To build a corpus of funds for your future goals, one of the best and easiest way to invest in SIPs in equity mutual funds.  Lately, a few mutual fund houses have started providing an inbuilt additional facility for SIP investors in the form of an life cover. This concept offers the investors the freedom to invest in SIPs without worrying about their dependent’s future. This feature encourages long term investment through SIPs, regardless of the market situation, by providing a certain cover to the investor in case of any uncertainty.


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Here is a look at what they are, how they work, if you should opt for it.

What is an MF Scheme With Insurance Cover?

Mutual Fund Houses provide an additional facility of insurance cover to the investors via investing in SIPs. This is also subject to certain conditions like the fact that it will be a group insurance cover not an individual one.
Investors are requested to first note that this add on feature is only available with certain mutual fund houses and is optional. In addition to this, it comes at a zero cost to the customer, as the fund house will be paying the premium on behalf of the investors. Also, there won’t be any requirement for medical examination, but a declaration of good health has to be made.

Who is Eligible?

To be eligible for life cover, the investors should take care of certain conditions, as mentioned below –

Investors should invest through SIP in the select fund for 3 years and above.
Entry age ranges between 18-51 years and the life cover is valid until 55 years of age depending on different fund houses.

In case of multiple holders, only the first unitholder will be eligible for the insurance cover.

How it Works?

In the initial years of your SIP tenure, the insurance cover offered in the SIP linked schemes will be on a lower side. Once you have decided the SIP amount to be invested, then life cover will be a specific multiple of the SIP amount in the first, second and third year, which could be 10, 20, and 30 times. basically the life cover value depends on the amount invested. For instance, if the monthly SIP is Rs. 10,000 the life cover in the 1st, 2nd, and 3rd year onwards will be 1 lakh, 2 lakh, and 3 lakh, respectively.

The table below shows the multiple of the SIP amount of three schemes –

  SIP with insurance Cover - Schemes  
Cover in year 1Cover in year 2Cover in year 3Max Cover (Rs.)*Coverage till age (in years)
(of monthly SIP amount)(of monthly SIP amount)(of monthly SIP amount)
Birla MF Century SIP10×50×100×25 lakh60
ICICI Pru MF SIP Plus10×50×100×25 lakh55
Reliance MF SIP Insure10×50×100×25 lakh55


Also AMCs have also put a cap on the maximum life cover that will be provided to the investors. While higher amount of SIP would mean higher coverage for an investor, the maximum cover, in any case, cannot exceed the maximum limit of the life cover, varying from AMC to AMC, it can be either Rs 21 lakh, Rs 25 lakh, or Rs 50 lakh across all schemes, plans taken together. there is no upper limit for the tenure but a minimum limit of 36 months is there.

What Happens If You Stop or Redeem Mid-Way?

you will have to keep on investing at least for a period of minimum three years or else you will lose your life cover. Partial or full exit before the completion of the minimum tenure or attaining the maximum specified age, will result in your insurance getting discontinued. On exiting after the completion of 3 years from the date of allotment of units, the life cover will remain, however it will get reduced to the fund value of units allotted at the starting of the policy year or the maximum insurance limit.

Should You Opt for it?

as we have mentioned earlier, all schemes of the fund houses are not eligible for this add-on feature of SIP plus insurance policy. The life cover provided by the Mutual fund houses has been capped at Rs 50 lakh. Having term insurance with a sum assured worth at least15 times of your annual income is an absolute must for every financially independent individual with dependents.

Having a term insurance assures you for the sure future of your family when you are not around. Hence for most investors the life cover provided by selected funds will short fall.

But since it comes with zero cost to the customer and the premium is funded by the respective AMC, it is for sure a good add on feature for the investments that may help the families in case of unforeseen circumstances. but we suggest you to opt for this feature only once you have done the background research on the selected fund for its performance in the past years, financial goals and risk appetite. Do not invest just because it is offering a life insurance cover.

When you start earning, the very moment you should buy term and health insurance policies. the term insurance should be independent of the investments you make for your life goals. So one must have a separate term insurance policy that should be kept active through timely premium payments.

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