Should You Opt for SIPs with Free Life Insurance Cover?

Mar 19, 2022

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In the aftermath of the COVID-19 pandemic more and more people have become aware of the importance of financially securing their families with a life insurance cover. Besides, due to the volatile nature of the equity market, many individuals are increasingly opting for the Systematic Investment Plan (SIPs) mode of investment, which is an efficient way to invest in mutual funds. Understanding this situation of growing awareness of life insurance and investors recognising SIPs as a worthy mode of investment, many mutual fund houses have launched SIPs that offer free life insurance cover. However interesting these insurance-wrapped SIPs may sound, are they really worth investing in? Should you opt for the SIPs with free life insurance cover? Read this article to know the answer...

What are SIPs with free insurance cover?

If you believe that investing in Systematic Investment Plans, popularly known as SIPs, is a smart investment tool, we have good news for you. Your SIP can offer you free life insurance. Several mutual fund houses render free term life insurance cover to their investors who invest in SIPs. For SIP investors with existing life insurance policies, it acts as a top-up life insurance plan. This scheme is known by various names, such as SIP Insure, SIP Plus, etc. Although it has been in the market for quite a time, due to the current need for investing in SIPs and buying life insurance, the insurance-wrapped SIPs are likely to make a comeback.

How does it work?

Several mutual fund houses like ICICI Prudential Mutual Fund, Aditya Birla Sun Life Mutual Fund, Nippon India Mutual Fund, etc. have introduced SIP Insure schemes. The investor receives the insurance cover in the form of term insurance, which is accessible as a group insurance policy. Meaning, mutual fund houses purchase Group Term Plan from insurance firms to offer insurance to investors. The insurance coverage is generally offered without any charges.

Most mutual fund houses offer this cover on SIPs in specific schemes which has to be continued for a minimum tenure of 36 months. The life insurance coverage is linked to the SIP and continues until the investor holds the SIP.

So, once you decide on the SIP amount, the life insurance cover will be a specific multiple of the monthly SIP amount, which may vary from scheme to scheme. Generally, the life cover offered in the first year is 10 times the SIP amount. Similarly, it is 20 times in the second year, and 30 times in the third year. For instance, if you opt for a monthly SIP of Rs 5,000, the life insurance cover in the first year would be Rs 50,000, in the second year it would be Rs 1,00,000, and in the third year, it would be Rs 1,50,000.

Here are the key features of the insurance-wrapped SIPs:

  • The investor should be between the age of 18 to 55 years to avail of the insurance benefit. Some fund houses extend the age limit to 60 years.

  • In the case of more than one SIP holder in a single scheme, the life insurance cover is offered only to the first holder.

  • The investor does not have to undergo medical tests but a self-declaration of good health has to be given.

  • The life insurance cover is offered in the form of group-term insurance where the mortality charges are borne by the mutual fund house and the death claim is paid by the insurance company directly to the nominee.

  • The limit on the maximum life cover varies from fund house to fund house. It can typically be either Rs 21 Lakhs, Rs 25 Lakhs, or Rs 50 Lakhs across all schemes, plans, and folios taken together.

  • The investor has to make an investment for at least 36 months to get the insurance cover. But, there is no maximum SIP tenure.

  • In the case of a perpetual SIP, the insurance cover discontinues when the investor reaches the maximum age criteria or the tenure selected by the investor.

Should You Opt for SIPs with Free Life Insurance Cover?
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Can you exit mid-way?

You can exit the scheme anytime like any other SIP. However, exit load and/or taxes may be applicable depending on the holding period and can vary from scheme to scheme. Most mutual fund houses charge exit load of 1% if the unit/s are redeemed within one year. You can refer to the scheme information document (SID) to know about the exit load applicable on the schemes.. It is important to note that partial withdrawal, full exit, or stopping the SIP will result in the ceasing of the life insurance cover.


What are the benefits of investing in insurance-wrapped SIPs?

  • The investor receives free life insurance cover that financially protects their family in case of an unfortunate demise of the investor.

  • It offers a substantial life cover that can help the family meet their requirements in your absence.

  • In case of demise of the investor, the nominee will be entitled to receive the scheme value along with the life cover.

  • Unlike term insurance, if the investor survives the SIP tenure, the invested funds can be redeemed with the accumulated sum over the period.

What are the demerits of investing in insurance-wrapped SIPs?

  • Not all mutual fund schemes offer this facility. Hence, the investor has limited options to choose from.

  • The insurance cover offered under the scheme might not be sufficient to meet all the requirements of the family in case of the sudden demise of the investor. Therefore, it cannot be considered as an alternative to a term plan.

  • Insurance cover has an initial waiting period of 60 to 90 days and it does not cover death due to a pre-existing disease. However, the waiting period does not apply to accidental death.

  • The exit load is considerably high, especially if you need to redeem the units within a year of the allotment of the units.

  • In the case of full or partial withdrawal of the units, the fund house ceases the life insurance cover.

Should you opt for SIPs with free life insurance cover?

After considering all the above points, if you decide to opt for SIPs with free insurance cover, make sure you compare the different schemes and carefully choose the best and most suitable one to SIP in. Since not all the schemes offer insurance cover, you have to be careful when selecting the scheme. When choosing the SIP, it is advisable to consider the long-term performance of the scheme. You should consider investing in a SIP with free insurance cover only if you are looking for long-term investment and a top-up insurance cover. Merely a free life insurance cover should not be the only deciding factor when choosing the mutual fund for SIP as a full or partial redemption due to any reason will result in the termination of term insurance cover. Moreover, the life insurance cover offered on SIPs has a maximum cap, which does not make it an ideal primary life insurance cover as it will most likely not be sufficient for your family's needs. Therefore, insurance-wrapped SIPs are an ideal investment only when they have consistently good past performance. The life insurance cover should simply consider as an added advantage.


Warm Regards,
Ketki Jadhav
Content Writer

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