Mutual funds offering free life insurance with SIP. What is it?

You have seen ULIPs, where insurance is clubbed with investment. Now, there are SIPs clubbed with life insurance

Staff Writer Sep 7, 2018

Mutual funds offering free life insurance with SIP. What is it?For quite some time now, three large fund-houses have been offering free life insurance with mutual fund Systematic Investment Plans (SIPs). ICICI Prudential MF calls their product ‘SIP Plus’, Reliance MF calls it SIP Insure and Aditya Birla Sun Life MF has named it Century SIP.

Let us find out key benefits, and features to help you arrive at an informed decision. All you have to do is commit to at least 3-year tenure SIPs, and you can have free life insurance of up to Rs 25-50 lakh.

When mutual fund houses talk about insurance, it is always term insurance. Many MF commentators, financial planners, and experts believe that term insurance can take care of the financial protection needs of an investor, while funds can be used to grow wealth. This is because only life insurance can guarantee a sum of money upon your death; mutual funds require regular investments – if there are no regular investments, the growth becomes stunted.

Hence, the idea of combining insurance with MF SIP is a good one. You may like to note that life insurance companies offer their own version of combining insurance and investment; it is called Unit Linked Investment Plans (ULIPs).

All the fund-houses offers the free insurance with SIP facility as an add-on, an optional feature for select schemes. Typically, a term insurance plan for Rs 50 lakh would cost you Rs 3000-5000 a year. The fund-house provides a group life insurance cover provided by a life insurance company. It bears the entire premium cost; the premium is not as high because it is a group insurance policy.

This type of insurance cover is available for resident individual/NRI investors. However, non-individuals as well as US persons/Persons not of Indian Origin (PIO)/Sole Proprietorship are not covered under this type of insurance cover usually.

The investor will necessarily be required to furnish his/her date of birth and gender in the application form, in absence of which, no insurance cover can be availed by the investor. The insurance cover commences after “waiting period” of 45 days from the commencement of SIP installments. However, the waiting period will not be applicable in respect of accidental deaths.

In most cases, the insurance cover is available for individuals aged above 18 years and not more than 51 years, at the time of the first investment. Only the first unit holder will be covered under the insurance. No insurance cover will be provided for the second/third unitholder. The insurance cover will cease on completion of 55-60 years of age (depends on the fund-house). However, the SIP shall continue till the end of tenure if SIP is registered beyond 55 years of age.

AMC SIP insurance product Insurance cover maximum Minimum entry age for cover Cover ends Minimum SIP tenure for insurance Minimum investment for insurance
Aditya Birla Sun Life Century SIP Rs 25 lakh per investor 18 years 60 years 3 years Rs 1000
ICICI Prudential SIP Plus Rs 50 lakh per investor 18 years 55 years 3 years As per scheme
Reliance SIP Insure Rs 50 lakh per investor 18 years 55 years 3 years Rs 500 per month
* Not all schemes are eligible for SIP insurance. Check with each fund-house for eligible schemes list.

If an investor provides SIP tenure less than three years, the investor will not be eligible for insurance cover.

The amount of life insurance cover is the key thing in this product. In Year 1, the cover is 10 times the monthly SIP Plus (ICICI Pru) installment. In Year 2, the cover rises to 50 times the monthly SIP Plus installment. Year 3 onwards the life cover is 100 times the monthly SIP Plus installment. In case of SIP Insure (Reliance), the SIP cover is 120 times the monthly SIP installment. In Century SIP product (Aditya Birla Sun Life), in the first year, the insurance cover is 10 times monthly SIP installment. In the second year the cover rises to 50 times, and the third year onwards the cover is 100 times.

Do remember that al the above-mentioned limits are subject to a maximum cover of Rs 25-50 lakh per investor across all schemes /plans/folios.

If the SIP is discontinued, in most cases then the insurance cover changes. If you stop the SIP before 3 years, the insurance cover stops immediately. If SIP is discontinued after 3 years, the insurance cover does continue. Then the cover will depend on full/partial redemption or the switching prior to the completion of the SIP tenure.

Please remember that consecutive payment defaults or a fixed number of defaults over the tenure of SIP can lead to termination of the insurance cover. For instance, in Aditya Birla Sun Life Century SIP, two consecutive payment defaults or four defaults over the tenure of Century SIP can lead to insurance cover termination. In case of Reliance SIP Insure, default in the payment of three consecutive monthly SIP installments or five separate occasions of such defaults during the tenure of the SIP duration, can lead to cessation of insurance cover.

Please note that the AMC will not be responsible or liable for maintaining service levels and/or any delay in processing claims arising out of this facility. The nominees will have to file their claims directly with the insurance company. Upon receipt of proper documents, the sum assured will be sent directly to the bank account. So, kindly register the nominee, contact details etc.

The group life insurance cover is subject to a list of exclusions. The group insurance cover will not cover instances of death due to suicide in the first year of cover. Death within 45 days from the commencement of the SIP installments, except for death due to an accident, will not be covered.

Lastly, do keep an eye on the exit load for the free insurance SIP schemes.

Staff Writer

This article is written by RupeeIQ editorial staff.

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Mohammed Haseeb