All you need to know about mutual fund schemes that offer insurance covers

Many mutual fund houses in India have added a new feature in their schemes – insurance benefits at no additional cost to tap into its popularity. This scheme enables investors who opt for a systematic investment plan (SIP) for wealth creation to have the simultaneous benefits of insurance cover without additional costs.

You can avail of the insurance option while filling out the SIP investment form. You will get group insurance policy offers at no cost. Such features can be availed by investors in the 18-51 age bracket.

The idea may look attractive since it gives you a mix of both ‘Is’ vital to financial planning. However, understand the limitations of this arrangement, too. Here are a few facts you need to know about mutual fund schemes with insurance covers.

SIP tenure

Your SIP investment tenure should be at least three years to qualify for insurance coverage. If the SIP is terminated in between or the investor withdraws or switches before the minimum tenure, the insurance cover ceases. However, if the investor stops the SIP after three years, the insurance coverage will continue till the investor attains the maximum eligible age, 55 to 60.

Insurance cover amount

The insurance cover depends on the SIP amount. Typically, in mutual fund investments combined with insurance, the first year’s coverage is ten times the SIP amount which increases to 50 times in the second year. And from the third year onwards, it rises to 100 times. For instance, if your SIP amount is Rs. 1000, the first year’s cover will be Rs. 10,000; it will rise to Rs. 50,000 in the second year and Rs. 1 lakh in the third year.

Maximum cover to take

The maximum insurance cover permitted under such schemes is Rs. 50 lakh across all the plans and accounts held by an investor in a fund house. Some fund houses have kept the limit at Rs. 20 lakh. Compared with traditional term insurance, such low coverage offering may not be sufficient for high-income investors. Additionally, deaths related to pre-existing illnesses are not covered.

Impact of withdrawal

Premature withdrawal before the SIP tenure attracts an exit load of 2%. Further, this also leads to the stoppage of insurance cover. There will be an exit load if the investor dies and the nominee redeems the fund units.

SIP instalments to continue in case of demise

In some such mutual fund-linked insurance products, even after the death of the investor during the investment tenure, the insurance cover will take care of the rest of the instalments. The nominee can continue to be part of the scheme or claim the cover proceeds.


Investors should know the fund-specific details before opting for such investments. Terms and conditions vary from one fund house to another. Add-on insurance is new to mutual funds. Since the coverage is part of a group insurance policy, in case of the claim, you will be required to contact the insurance company that has partnered in this product and not the mutual fund house.

Ideally, you should separate the two for best results from investments and insurance. Both have unique objectives that do not mix well.

The maximum term covered in these plans is less than a typical term insurance plan. The cover amount and age limit falls short compared with the traditional term insurance.

Further, not all schemes come with insurance benefits. Only certain specific schemes offer these insurance benefits bundled in them, and you have to opt for them.

The author is the CEO at Views expressed are that of the author.

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