What are Mutual Funds with Life Insurance Plan? All You Need to Know

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What are Mutual Funds with Life Insurance Plans? All You Need to Know

Mutual Fund Insurance: An Overview

In recent years, Mutual funds products have been increasing tremendously in the Indian market. Now some mutual fund schemes offer mutual fund SIP with Insurance which gives insurance benefits at no premium cost. major fund houses have started including insurance and mutual funds under one scheme. It is also named SIP insure mutual funds or SIP plus etc. These mutual funds provide group insurance policies for free as they charge zero premium fees. In this article, we are going to learn about mutual fund insurance and how one can avail of the benefits of mutual funds and insurance under one scheme. 

What are Mutual Funds with Life Insurance Plans?

Mutual fund schemes offer life insurance coverage when an investor invests through a SIP (systematic investment plan). Investing in mutual funds with insurance is a great way to build wealth and at the same time protect yourself with life insurance. The insurance cover increases in the first year, the second year, and the third year, and most importantly the coverage relies on the SIP amount. In the first year, insurance coverage is ten times the SIP, in the second year, it increases to 50 times the SIP, and in the third year, the coverage is 1some mutual funds offer coverage is 50 lakhs. However, some mutual funds offer maximum cover of up to 25 lakhs. These mutual fund schemes with life insurance do not charge any premium from you to provide insurance. So, before starting your SIP, you need to enquire about your maximum insurance coverage. 

There are some mutual fund companies like Reliance mutual fund, ICICI Pru mutual fund, and Birla mutual fund who provide such insurance benefits with their scheme. They provide insurance policy at free of cost and they are providing these benefits to encourage investors to start investing in mutual funds. 

What does this mean for you?

  • You can save taxes by investing in a tax-saving mutual fund and taking advantage of its money.
  • You can save on premiums by investing in a life insurance plan through the mutual fund scheme instead of buying the same separately, which could lower your monthly outgo significantly.
  • Section 80C of the Income Tax Act 1963 allows you to deduct a portion of your employer's payment from your life insurance premium. Check with them before using this benefit, as it may differ from employer to employer and company to firm based on their policy.
  • Finally, an increase in cover amount (to Rs 1 crore) means greater peace of mind for you and your family!

How does this scheme work? With examples and tables

The scheme works on a simple principle:

  • You mainly invest in mutual funds. This fund's money is invested for the plan's duration. You can't withdraw funds before maturity.
  • In addition to investing in the mutual fund, you buy an insurance cover of one year (or more) by paying an additional premium called a "Life Insurance Plan." This is done through the "Unit Linked Insurance Plan" or ULIPs (which we'll discuss later).
  • Fresh investments are made into the primary investment vehicle and life insurance cover (ULIP), depending on how much you have already invested in each over time. This ensures that your new investments are matched with current liabilities and future liabilities arising from an increased overall investment horizon due to long-term growth rates sought out by investors who wish not only capital appreciation but also protection against longevity risk associated with inflationary pressures experienced by developing nations. India has had significant economic growth over recent years, leading to 2020 - 2030, estimated at around 8-9% per annum.* How do I calculate my insurance cover amount?

Key takeaways

  • Investors can get life insurance benefits by investing in mutual funds with insurance through SIP. 
  • Mutual fund insurance provides a group insurance policy with no additional cost. All you need to pay a monthly SIP for a minimum of three years. 
  • The maximum insurance cover one can get is 50 lakhs. The insurance cover depends on the monthly SIP. 

Who is eligible to take insurance mutual funds? 

  • Your age should be between 18 to 51. 
  • You should continue your SIP for a minimum of three years and in any case, if you discontinue your SIP before the completion of three years, you will not be eligible. 
  • Both residents of India and Non-residents of India are eligible for mutual fund insurance as the scheme is for everyone. 
  • You must opt for a SIP (systematic investment plan) while investing in your mutual fund scheme to have the benefits of insurance cover. 

Features of Mutual Fund with Life Insurance Plans

  • Mutual fund insurance offers group term insurance cover and not an individual term cover. 
  • The insurance benefit is provided to monthly SIP accounts and not lump sum investment accounts.
  • An investor gets free life insurance coverage by investing in mutual fund insurance. 
  • Mutual fund insurance companies pay your SIPs, and the account holder dies. 
  • The life insurance policy you are getting from investing in mutual funds with insurance is not provided by any mutual fund houses. The mutual fund company has a tie-up with life insurance companies. So, mutual fund companies are not accountable if your claim got late or rejected. 
  • Nominees have to apply directly to a life insurance company to claim insurance rather than a mutual fund company. 

Things you should keep in mind while investing in mutual fund insurance

  • You have to continue your SIP for a minimum of three years but in case you need money and withdraw your money before three years, then your life insurance policy will lapse and you will be charged a penalty by paying a 2% exit load. If you make a partial or full withdrawal within one year, 2% of NAV will be levied as a penalty on you. 
  • Your life insurance policy will lapse if you fail to pay a few consecutive SIPs or if you paid late. However, it depends on from which mutual fund house you have taken the SIP because the terms and conditions differ from company to company.
  • The insurance will exist until an investor turns 55 and after that, the insurance will come to an end. So, you should not solely rely on mutual fund insurance to cover yourself. 
  • Mutual fund insurance does not provide enough insurance coverage or enough death benefits.

Why do AMCs offer this kind of insurance cover with Mutual fund schemes?

Mutual fund advisors are also trying to increase their market share. They want to attract new investors looking for a product to help them save on taxes and meet their financial goals. Since mutual funds come with an insurance cover, they can offer more value at a lower cost than other products like unit-linked insurance policies (ULIPs). This makes it easier for an AMC to offer more products while losing little money in the process.

Term Life Insurance Premium Calculator

You can use the Term Life Insurance Premium Calculator to estimate the premiums for different policies. This calculator works by entering some details, like your age, gender, weight, and height. The more details you enter, your estimated premium will be more accurate.

SIP installments to continue in case of demise

If you opt for a life insurance plan, SIP installments will continue to be paid as per the plan, even in case of death. The premium amount is paid to the insurance company, and the maturity value is paid to the nominee. In some cases, the nominee can take a loan against this maturity value or keep it in their bank account for future use.

Insurance cover amount

Your money is in a life insurance-linked mutual fund. Death benefits are paid to the recipient. Multiplying the investment by a guaranteed sum calculates the insurance cover (usually ten times). This might be lump cash or another payment method (like a monthly pension).
To conclude, consult your financial advisor before making any investment decisions and ensure that your investment meets your objective. You should check the fund's history, fund managers, benchmark out performance, and risk appetite while investing in any financial instrument. However, you should never rely solely on mutual fund insurance to cover yourself because both have unique roles in an individual life. You must insure yourself 10 to 20 times your annual income if you are the single bread earner of your family by taking term life insurance. 

  • What is the minimum tenure for mutual funds with insurance?

  • Can I get insurance on a mutual fund?

  • Define SIP insure mutual fund.

  • Did the insurance policy provided by the mutual fund house start from the day you start your SIP?

  • When does mutual fund insurance expire?

  • What is a mutual fund?

  • What is a life insurance plan?

  • Do I control my mutual fund investments?

  • How do I set up my mutual fund account?