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Mutual Funds With Free Insurance: Should You Opt Them?


While mutual funds due to their power of compounding are now a must-have in one's kitty to achieve long term goals, a new lure has been added to it by providing free insurance. But should you be going for such a product mix. Here we will discuss on it. First let us detail on what is this investment product all about and how it works:

Mutual Funds With Free Insurance: Should You Opt Them?

Mutual fund companies such as ICICI Pru MF, Reliance MF and Birla MF are offering mutual fund-insurance package. And here is a breakdown on it:

What is mutual fund with insurance cover?

In such a mutual fund, for all of the mutual fund investors, AMCs buy a group cover and it typically spans roughly 50-100 times your monthly SIP amount. So, in case your monthly investment in a SIP is Rs. 10,000. The company will offer you a free term cover of up to Rs. 10 lakhs. So, importantly you as an individual or investor in SIP is provided a group cover and not an individual cover.

The operation of the product also differs from AMC to AMC i.e. in a case when the investor survives, the proceeds may be put to complete your SIP tenure without further contribution from your side. Here another pointer that needs an investor's attention that in the case of death, the insurance proceeds are not given to the nominee but are put to complete the SIP tenure.

Also, some of the features of the normal insurance policy do apply as the cover becomes applicable after 90 days of the commencement of the SIP etc.

Exit load intricacy you need to know here: Suppose your SIP has a 5 year term more and you wish to terminate the SIP now then exit load of up to 2% will be charged on the redemption value. And this levy is particularly to fund the premium for group cover.


Should you buy mutual funds with free cover?

From a financial perspective, one should keep insurance and investment goals separate and this can just be looked to provide you an insurance add-on, which also has a maximum cover limit of Rs. 20 lakhs. It may go well with AMCs as the additional benefit of insurance may lure the investor to continue with their investment through the SIP term, provided it fetches him or her reasonable returns.

But, it is also said to impact the performance of the fund and in a case when the performance metrics is not up to mark, you will be caught in a situation, where you will find it difficult to exit the investment due to high exit load charges.

Story first published: Thursday, August 1, 2019, 10:12 [IST]
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