What is SIP with insurance?

Mutual fund providers have a new product that offers life insurance as a bundled option – for free. We explain what SIP with insurance is, and whether it can be the right investment for you.

What is SIP with insurance?

An SIP with insurance combines two types of investments: a mutual fund systematic investment plan (SIP) and term insurance. This is also called ‘mutual fund SIP with insurance’.

The components

There are a number of mutual fund based investment plans in India that most people are familiar with, especially the tax-saving kind. Investing in mutual funds through SIP is nothing more than making a steady monthly investment to make sure it grows over a period of years (or even decades) to achieve various financial goals. Term insurance is life insurance with no returns in the traditional sense – it is the purest form of life insurance, which means a pay-out is awarded in the event of the policyholder’s demise.

What is SIP with insurance? 

SIP with insurance adds a term life insurance policy to your mutual fund investment without requiring you to pay for it separately. This is an interesting proposition, because a standard term life insurance that pays out Rs 50 lakh usually entails an annual premium that is upwards of Rs 9000.

How does SIP with insurance work?

Bundled mutual fund insurance plans have a few components to them.

The sum insured is usually a multiple of the amount invested monthly in the SIP. For example, if the monthly sum invested in the mutual fund is Rs 10,000, the sum insured for the first year is ten times that monthly investment amount (Rs 1 lakh). In the second year, it might be 50 times the monthly sum invested (Rs 5 lakh). In the third year, the sum insured might go up to 100 times the monthly sum invested, making the term life insurance amount Rs 10 lakh.

Some schemes will offer insurance cover worth 20 times the monthly investment in the first year, 75 times the investment in the second year, and 120 times the monthly investment amount from the third year onward. Certain schemes will hold the insurance plan valid until the age of 50, others until the age of 60. You will have to check with each provider before deciding which is right for you.

Most SIP with insurance plans include a ‘lock-in period’ for it to be effective. This is usually around three years. So, if the customer discontinues the SIP before the three years are up, they are not eligible for the term insurance component.

Who is eligible for SIP with insurance?

Anyone who’s 18 or older is eligible to subscribe to mutual funds with SIP. Some providers limit the entry age to 51 years; others mention that the eligibility for the insurance will expire at the maximum age set by them, whether it is 50, 55, or 60 years.

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Who offers SIP with insurance? 

All the regular investment providers have schemes that offers mutual funds with bundled life insurance. Here are a few of them:

  • ICICI Prudential offers a scheme called SIP Plus. It offers term life insurance worth 10 times the monthly investment for the first year, 50 times the monthly investment for the second year, and 100 times the monthly investment from the third year onward. The scheme accepts individuals from 18 to 51 years of age. At 55 years, the insurance cover lapses. The maximum insurance cover offered is Rs 50 lakh.
  • Aditya Birla Capital offers a scheme called Aditya Birla Sun Life Mutual Fund Century SIP as an add-on to some of its schemes, both equity and debt. It offers the exact same features as the ICICI Prudential SIP Plus, except the insurance cover holds until the investor is 60 years of age.
  • Nippon India's SIP Insure plan offers the same features but with one difference: the third year of subscription offers insurance cover that is 120 times the value of the monthly investment. The Nippon India SIP Insure plan runs to a maximum age of 55 years.

What are the good points of SIP with insurance?

  • Term life insurance is provided under a group insurance umbrella, so there are no medical checks – unlike with a personal insurance policy.
  • The insurance component is free. There’s no additional charge; it is dependent solely on the amount the investor puts into the mutual funds every month.
  • Income Tax benefits under Section 80C are available for investments specifically made in ELSS schemes, if offered by the fund house.

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Are there any limitations? 

They can’t be called ‘limitations’, because this isn’t really an insurance product – it is a mutual fund scheme with additional life insurance. Since we are talking about mutual funds, it doesn’t come under the purview of a tax-saving investment (as a pure life insurance policy would). Another thing is that the insurance cover is limited to Rs 50 lakh, no matter how much you invest in the mutual fund. Most mutual fund investment policies that offer SIP with insurance will offer Rs 20-50 lakh as cover.

Is there anything else I should know about SIP with insurance?

If the mutual fund is held by more than one person, the bundled insurance covers only the primary holder.

Lump sum investments are not eligible for SIP with investment plans. What this means is you cannot invest Rs 1 lakh in the mutual fund at one go and subscribe to a plan like this. The investment needs to be monthly, and for a minimum period as stated in the offer (usually three years). If the investment in the mutual funds terminates due to failure of payment for three successive months, the insurance cover is terminated as well.

SIP mutual fund with insurance plan is not a substitute for a term life insurance cover; it is merely a free value addition to your monthly mutual fund investment that allows you to get extra benefit out of your investment.

The insurance cover will lapse once the investor reaches the designated maximum age limit in the documentation. It will also lapse at the end of the term of the scheme. For example, if you subscribe to the SIP for 10 years, the bundled life insurance is also valid for 10 years. Some schemes deem the insurance cover to be void if there is redemption of units, either full or partial, before the term of the scheme is up. Some schemes will consider the insurance void if the investor passes away due to pre-existing conditions.

The insurance component might be terminated if you switch to a different scheme that does not have this add-on, even if it is provided by the same company.

Do not purchase mutual funds on the basis of the insurance component alone – check that they offer good performance independent of the insurance cover.

Read the fine print carefully, because there might be a clause that’s not acceptable to you.

RelatedWhat to do with your money when your SIP matures?

Is SIP with insurance right for you?

If you are just starting on your investment journey, it could be a good idea to get two investments (mutual fund plus life insurance) for the price of one. It’s also a viable option if you’re facing a cash crunch but need to keep your insurance going. However, as stated earlier, do check the performance of those mutual funds and subscribe to them on the basis of their performance, and not on the basis of the bundled insurance. 4 Reasons to stay invested in SIPs even during the pandemic.


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