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What is SIP with Insurance?

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Mutual fund houses in order to promote investment through SIP have come out with additional facility of life insurance cover embedded into Systematic Investment Plans (SIPs). The underlying concept of this investment is the same as that of normal SIPs, the only addition is that investors benefit from a free life cover.

The free life cover is subject to numerous terms and conditions that are different for every fund house. However, the common requirement to avail the benefits of free life cover is to stay invested in the mutual fund for at least 3 years. If an investor discontinues SIP before 3 years, the insurance cover also terminates. 

The USP of SIP with insurance is that no medical test is needed before signing up for insurance. Also, all the expenses related to life insurance, are borne by the fund house. Thus, insurance comes effectively free of cost to investors.   

Also Read: Top 10 SIP to start in 2019

Who is Eligible for SIP with Insurance?

The investment option is available to all residents and NRIs between the ages of 18 to 51 at the time of investment. The continuity of the life insurance cover, however, can be capped at 55-60 years of age, depending on the policies of the fund house. The cover terminates as the investor reaches the maximum age. If there are multiple investors, only the first unit holder is eligible for the insurance.

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How Does Mutual Fund SIP cum Insurance Scheme Work?

This investment vehicle has been designed to encourage new and existing investors to look at mutual funds for long-term investment. The life insurance cover comes as a sort of an add-on freebie and is designed to help the fund houses compete with life insurance companies. 

Asset Management Companies (AMCs) that already have operational insurance policies in place, usually provide insurance to all their investors of Mutual Funds for selected schemes. The AMC takes up a group cover for its investors. The structure of the terms and conditions of SIP with insurance schemes are geared to discourage early withdrawals and to ensure that they have a longer voluntary lock-in beyond the mandatory 3 years.

Also Read: What is SIP?

The value of cover depends on investment through SIPs. It is a multiple of your SIP instalment, 10 times for year 1, 50 times for year 2, and 100 times for year 3. With a higher SIP amount, the investor will get a higher cover. In essence, it all depends on the SIP amount an individual invests.

Name of Fund Cover in Year 1 Cover in Year 2 Cover in year 3 Maximum Cover (₹)** Maximum Age
ICICI Pru MF SIP Plus  10x 50x 100x 50 lakh 55
Birla MF Century SIP 10x 50x 100x 25 lakh 60
Reliance MF SIP Insure 10x 50x 100x 21 lakh 55

** Total of all existing SIPs plus insurance schemes

Is it Worth Investing in SIP with Insurance Scheme?

With dual benefits of insurance and investment, this can be a good option to invest in. However,  it should not be the only criterion that drives your investment decisions.

It is always better to choose a mutual fund scheme on the basis of your financial objectives, investment horizon, risk appetite, the market performance of the fund and its track record. Further, not all schemes of mutual fund houses come with the life insurance facility. 

In addition, reviewing the mutual fund selection from time to time and replace the low or under-performing funds with better ones is a good idea. This replacement is not possible with SIP with insurance due to the lock-in. 

Since your prime objective is to generate good returns on your investment, first you should select the best performing SIPs based on the past performance. If a fund that has been managed well in the past has come up with an insurance facility, you can definitely consider it. However, insurance benefits should not be the only factor while opting out for a SIP.

Also Read: Calculate Your SIP Amount using SIP Calculator

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