Though investing in equity through mutual funds via Systematic Investment Plan (SIP) is gathering pace of late, mutual fund houses have been wary of the investors discontinuing SIPs when the stock market corrects or is volatile. So, to ensure that the investors do not discontinue the SIPs, mutual funds are now offering free life insurance cover in case the SIP is not discontinued. At present three mutual fund houses offer it. ICICI Prudential Mutual Fund offers it as ‘SIP Plus’, Reliance Mutual Fund offers it as ‘SIP Insure’ and Aditya Birla Mutual fund as ‘Century SIP’. The life insurance cover is linked to the value and tenure of SIP. It is free as the cost of group life insurance is borne by the asset management company. Let us understand how it works:
Who is eligible for this benefit
Anyone who has completed 18 years and have not completed 51 years can enrol with these mutual fund houses to avail this. Moreover, for availing this benefit, you have to specifically opt for the scheme. This benefits of free life insurance is available only on selected schemes as notified from time to time. Reliance, however, offers this facility with all the equity and hybrid schemes.
How much insurance is available
For all the three products, insurance is 10 times of the monthly SIP for the first 12 months. It goes up to 50 times for the second year for all the three products, but it is 120 times after the third year for Reliance and 100 times for Aditya Birla and ICICI. In terms of absolute amount the life insurance cover available is capped at Rs 21 lakh for Reliance (increased to Rs 50 lakh from 1st June 2018), Rs 25 lakh for Aditya Birla and a higher of Rs 50 lakh for ICICI Pru MF. So, although in terms of the number of times of monthly SIP amount, the insurance cover for Reliance is higher, but in absolute monetary terms ICICI offers almost the double than that offered by others. The amount of insurance is available for all the schemes taken together under the same or different folio for the first holder. Insurance is available for the first holder only and not for all the joint holders under the scheme.
When the insurance begins and ceases
The insurance cover commences after a waiting period of 45 days, but for accident there is no waiting period and it becomes available the moment the first SIP is debited. Like normal life insurance policy, the death due to suicide is covered after one year only.
The insurance cover ceases once you complete the age of 55 years for Reliance and ICICI, but for Aditya Birla it continues till 60 years. The insurance cover also ceases as soon as the tenure of the SIP is over. So, the insurance cover is available as long as the SIP continues and discontinues once the SIP discontinues. Even if you redeem money partly or fully out of the money invested during the SIP period, the insurance cover ceases immediately. The insurance also ceases in case SIP is returned unpaid for specified number of consecutive months which vary from fund house to fund house. For ICICI it is five consecutive occasions. In case of Reliance and Aditya Birla the insurance cover will cease if the SIP is not paid on four consecutive or different occasions.
In case the SIP is stopped after 3 years, the insurance does not cease and continues subject to the maximum amount available under the scheme. However, if the SIP is stopped before the completion of thee years, the insurance cover ceases immediately.
Tenure of the SIP
For being eligible under the scheme the tenure of SIP has to be specified in advance and has to be minimum of thee years, but generally there are no restrictions on SIP continuing beyond 55 years when the insurance cover ceases.
In case of ICICI and Reliance, if the investor redeems the investments before one year, the regular exit load, as applicable to the scheme, is charged. However, in case of Century SIP there is steep exit load of 2% if the units invested under this benefit are redeemed within one year and 1% for investments redeemed after one year, but before three years.
Benefit of the product
Since a certain sum as expressed in terms of number of times of the amount of your monthly SIP is covered under these products, you are assured that in case something happens to you during the SIP period, the goal for which the investments is being made will not get jeopardised as in case of premature death. Though the corpus of the fund invested by you may not be sufficient, but the same would be available through the insurance claim.
Though the insurance cover is free, but your choice of the fund house or scheme should not be dictated by this benefit only and the choice should primarily be based on the potential of performance of the scheme in which you wish to invest. However, in case you have equally performing schemes from all the three fund houses, you should opt for schemes of ICICI Prudential or Reliance due to a higher life insurance cover and lower exit load offered by them. If Reliance has a better performing scheme, it even scores over ICICI Pru in terms of the number of times of your monthly SIP the life insurance cover is available.
(By Balwant Jain, a tax and investment expert. He can be reached at firstname.lastname@example.org)