Let’s get into the specific details of mutual funds with insurance benefits and discover out if it is a wise choice or not!
What are mutual funds with insurance covers?
1. There are a few mutual fund companies including Birla Sun Life Mutual Fund, Reliance Capital Asset Management Company and ICICI Prudential Mutual Fund, that offer a complimentary life insurance cover to their SIP investors investing in particular schemes.
2. The cover offered is a term insurance policy, where the insurance company pays out money only in case of death of the investor.
Is there a minimum time of investment in mutual funds with investment cover?
Yes, if the investor remains invested for at least three years, only then he is eligible for insurance.
What if the investor exits the fund before 3 years?
The cover ceases if SIP is stopped before the completion of three years.
A few more essential things to know!
1. Maximum sum guaranteed is about 10 times the SIP instalment in year one, about 50 times in year two and about 100 times in year three.
2. The service is available to almost all investors in a few select schemes till the last SIP instalment or 55 years of age, whichever is earlier.
3. Most of the policies cover insurance instantly after the beginning of SIP. However, only accidental deaths are covered for the first 45 days.
Why do mutual funds with free insurance cover make sense?
1. They come with a benefit of free life insurance cover.
2. Investors don’t have to pay premium for life cover.
3. The insurance cover will be used to pay the SIP amount in case the investor dies.
A few words of caution!
1. There is an exit load of up to 2%.
2. Insurance is just a free component. One must select well rated funds first and then opt for the add-on to enjoy the extra benefit at no additional cost.
3. While you opt for this feature while starting an SIP with the mutual fund, at time of claim, you would need to deal with the insurance company. The AMC does not gaurantee claim settlement.
4. If you discontinue your SIP within three years, you will lose your insurance coverage.
5. It will cover only the first unitholder. The second and third unitholders do not get any insurance cover.