Mutual Fund SIP With Free Insurance Cover – Should you opt?

Mutual Fund SIP With Free Insurance CoverMutual Fund SIP With Free Insurance Cover

In order to provide an add-on feature in mutual funds to attract more people in investing, few fund houses have recently started to provide the benefit of free insurance along with the chosen mutual funds. Many of us would be thinking whether Mutual Fund SIP with free Insurance should be considered or should be avoided. What is Mutual Fund SIP Free Insurance Cover all about? Are all investors eligible for Mutual Funds SIP with Free Insurance Cover Scheme? What are the hidden charges in these SIP with Free Insurance Cover? Should you really opt for Mutual Funds SIP with Free Insurance Scheme?

Also Read: Best SIP Plans to invest in India in 2019

What are SIP in Mutual Funds?

You can skip this section if you are already familiar with SIP in Mutual Funds.

Mutual funds are the professionally managed investment vehicles that pool the funds of all investors for further investment in the stock market. There are two ways of investing in it

1) Lump sum investment – the entire amount is invested in a single shot by the investor.

2) SIP – SIP is the acronym of Systematic Investment Plan. It works on the principle of regular investment where an investor invests a certain amount of money at a recurring period, say weekly, bi-monthly, monthly, or quarterly.

Overview about Mutual Fund AMCs offering SIPs with Free Insurance

Some of the well known mutual fund houses like ICICI Prudential, Reliance Mutual Fund, Birla Sun Life Mutual Fund have launched an advanced and additional feature of providing life insurance cover to the investors. However, this scheme is not available on all mutual fund schemes, but only on selected mutual funds. This feature tempts investors to get coverage against the uncertainty of life besides along with accumulating wealth. These are called with various names like SIP plus, Century SIP, SIP insure etc.,

What is Mutual Fund SIP with Free Insurance Cover means?

Mutual fund SIP with insurance is a product in which you get life insurance cover when you set up / initiate a SIP. In simple terms, it is SIP + Insurance Cover. There is no additional cost to be incurred by the investor to obtain this insurance, but there are a few terms and conditions of the fund houses that are to be fulfilled. 

Are all investors eligible for Mutual Funds SIP with Free Insurance Cover Schemes?

Not all the investors are eligible to avail the facility of SIP plus insurance. This facility is available to investors aging between 18 to 51 years at the time of the first SIP investment. However, the continuity of the insurance cover may be kept up to the age of 55 to 60 years depending upon the fund houses. After this age, the insurance cover will expire automatically, irrespective of whether you continue to stay invested or not. The biggest benefit in it is that no medical checkups are required and all the expenses related to the insurance cover are borne by the fund house.

How much Life Insurance coverage is provided in Mutual Funds SIP with Insurance Cover?

In the initial years of SIP, the life cover offered is quite low. The insurance cover comes in the multiples of your SIP installments. It is set at 10 times in the first year SIP value, 50 times in the second year and 100-120 times after the 3 year period.  The maximum coverage, in any case, will not exceed Rs 50 lakh. This can be illustrated with an example- a monthly SIP of Rs. 10,000 will get you insurance of  Rs 100,000 in the first year,  500,000 in the second year and around  Rs 10 to 12 lakhs after the third year. However the value would depend on the amount decided by the mutual fund house. The value is also restricted to overall mutual fund SIP value you are investing with a mutual fund house and not for each and every mutual fund SIP. (e.g. if you are investing in 3 funds with ICICI MF for total of Rs 10,000, the insurance would get covered considering this over all amount)

Who is providing Mutual Funds SIPs with free insurance coverage now?

Currently there are few mutual fund AMCs who are providing this feature

1) Birla Mutual Funds Century SIP – They are providing the SIP with insurance cover for 18 to 60 years of age. The insurance cover for year-1 is 10x of SIP value; year-2 is 50x of SIP value and year-3 it is 100x of SIP value and the maximum is Rs 25 Lakhs.

2) ICICI Prudential SIP Plus – They are providing the SIP with insurance cover for 18 to 55 years of age. The insurance cover for year-1 is 10x of SIP value; year-2 is 50x of SIP value and year-3 it is 100x of SIP value and the maximum is Rs 50 Lakhs.

3) Reliance MF SIP Insure – They are providing the SIP with insurance cover for 18 to 51 years of age. The insurance cover for year-1 is 10x of SIP value; year-2 is 50x of SIP value and year-3 it is 120x of SIP value and the maximum is Rs 21 Lakhs.

What are the hidden charges in these Mutual Funds linked Insurance?

There are no hidden costs related to life cover. Few fund houses may charge an extra exit load if you redeem the fund before 3 years. Some mutual fund houses are charging 2% as exit load if you exit within 1 year. They are charging 1% exit load if you exit between 1 to 3 years. Beyond 3 years, there is no exit load. You should check the terms and conditions before you initiate SIP with this feature.

If you stop SIP, would your life insurance continue?

These guidelines would vary from fund house to fund house. Here are common guidelines.

1) If the investor discontinues investing in the SIP before three years, the insurance cover under SIP stops immediately. In order to retain your life cover, you need to remain invested continuously for a minimum of 3 years. If you stop your SIP after 3 years, the insurance cover stays, but the sum assured will be equivalent to the fund value subject to a maximum of 120 times the monthly SIP installment or Rs 50 lakh whichever is lower (would vary from fund house to fun house). To continue with the above example, suppose Rs. 10,000 of monthly SIP turns into Rs. 4.25 lakhs by the end of the third year. At this point, if you stop investing, the life cover will reduce from 10 lakhs to the actual fund value i.e. Rs. 4.25 lakhs.

2) If you make partial withdrawals or redemption of units, insurance cover would cease.

3) In case of default in payment of 3 consecutive monthly SIP installments or 5 separate occasions

4) After attaining the maximum insurance age specified by the fund house.

What are the exclusions in Mutual Funds with free insurance cover?

The following are not covered

1) Death due to suicide.

2) Death within 45 days from the commencement of Mutual Fund SIP installments except for death due to accident.

How to opt for SIP Mutual Funds with Insurance Cover?

When you initiate / create SIP, you need to opt for the life insurance option. The option should be available when you are doing it online for a specific mutual fund scheme. You need to just tick that and create the SIP in mutual funds (SIP Plus or Century SIP or SIP Insure).  Alternatively, when you invest online through AMC website, you would get this option. Read the terms and conditions before opting for that.

Also read: 5 Ways to protect your mutual fund investments from Scams

Should you really opt for Mutual Funds SIP with Free Insurance Cover Option?

It is good to have an additional insurance cover along with your SIP but does not get carried away with this additional benefit and let your investment decision down.  The choice of the mutual fund scheme must depend upon your financial goal, time horizon, the performance of the fund, and suitability of the fund, not upon these freebies. You cannot rely upon this free insurance cover only because it lasts only till the time you are invested in the fund. If you tempt to choose a wrong fund to avail this extra insurance, your investment may lose its worthiness and your ultimate motive of the creation of wealth may fail. In the long run, if you wish to switch over to any other fund you find suitable, you may stay invested in the same fund in fear of losing insurance and this will not do anything good for your finances.

Another demerit of SIP plus insurance is that it is not available on all funds. It provides a very limited choice to the investor in terms of funds. If any insurance claim arises, the investor has to settle it with the insurance company. The AMC, however does not interfere in between or provide any support. To add more, the insurance coverage is provided only to the first unit holder and not extended to joint or second unit holder.

In a summary, choose your mutual fund as per your financial need and performance of the fund and not according to these attracting free insurance schemes that may divert you from your original targets.  Your first priority should NOT be selecting a sip mutual fund that is offering free insurance, but selecting a good mutual fund and consider taking SIP free insurance if it has that option. However, check the exit load before opting.

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Mutual Fund SIP With Free Insurance Cover

Suresh KP


  1. I invested in SBI Gold MF NFO in 2011. But I have found that its NAV has not shown any upward trend after so many years. In fact since 2011, its NAV has increased to a maximum of around 10.82, otherwise, it has remained around 10.2 or so. Why is it so? Shall I come out of it and redeem my units. Is it not safe to invest in gold MFs. Please advise.

    1. Hi Naresha, Gold has not given any returns in the last 5-7 years. We could see some momentum in the last 1 year, that too on smaller pace. You should exit from such fund as of now. If your objective is to invest in gold, then you can invest in Sovereign gold scheme that can give you 2.5% per annum over and above gold price appreciation.

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