It is often said that you must not mix insurance and investment.
However, if you get life cover absolutely free of cost while making an investment, should you ignore it?
A few AMCs provide you an option to avail life cover (free of cost) when you start SIP in select schemes from them. Yes, the life cover is INDEED free and cost is borne by the AMC.
How does it work?
Life insurance cover is offered as group cover to the investors of the AMC. It is quite similar to group health insurance cover offered by your employer or group health cover offered by PSU banks to its account holders.
Do note insurance is offered by a life insurance company and not by mutual fund house (AMC).
In this case, life cover is essentially a tripartite agreement between you, AMC and the insurance company.
Not all investors with the AMCs get the life cover. Only those who opt for life insurance at the time of starting a SIP in a select scheme get this life cover. It is your discretion if you want to opt for such life cover facility.
Not all AMCs may offer life insurance along with SIP. As I understand, only 3 AMCs (ICICI Prudential, Birla Sun Life and Reliance) offer the life cover facility.
Do note the terms and conditions for availing the life cover may vary across AMCs. In fact, the terms and conditions are quite different across AMCs.
In this post, I will consider terms and conditions of ICICI Prudential SIP Plus plan (Plus is for life insurance).
How much life cover do you get under ICICI SIP Plus?
Life cover depends on SIP installment and the vintage of SIP.
- In the first year, life cover shall be 10 times monthly installment.
- In the second year, life cover shall be 50 times monthly installment.
- From third year onwards, life cover shall be 100 times monthly installment.
Maximum cover per investor shall not exceed Rs 20 lacs.
What are the conditions for availing this life cover under ICICI SIP Plus?
- Age of the investor should be between 18 and 46 at the time of first investment.
- Insurance cover shall cease on completion of 55 years of age.
- You need to open SIP for at least 3 years.
- The offer is available for select equity schemes of ICICI Prudential AMC.
- In case of joint accounts, the life cover is extended to only to the first holder.
- If you cancel SIP before 3 years, the life cover stops immediately.
- If you cancel SIP after 3 years, life insurance cover shall continue. The coverage will be the value of your investment at the start of each policy year subject to the maximum of 100 times monthly installment. There is an additional cap of Rs 20 lacs.
- If you make any redemption or switch out (wholly or partial) from the concerned scheme, insurance cover will cease with immediate effect.
- For any claims related activity, the nominee needs to get in touch with the insurance company. The AMC shall have no role to play.
Illustration
If you start a SIP of Rs 5,000 per month, you will have life cover of Rs 50,000 in the first year, Rs 2.5 lacs in the second year and Rs 5 lacs third year onwards.
If you start a SIP of Rs 50,000 per month, you will have life cover of Rs 5 lac in the first year, Rs 10 lacs in the second year and Rs 20 lacs (and Rs 50 lacs) third year onwards. Remember there is a cap of Rs 20 lacs per investor.
You can start SIPs across two eligible schemes and get the life cover across both. For instance, you start SIPs of Rs 2,500 each across two eligible schemes. Your life cover will be Rs 5 lacs in the first year (2 X 2,500 X 10) and so on. If you stop SIP in one of the schemes before 3 years, the life cover associated with the other scheme will still continue.
Do note the cap of Rs 20 lacs is per investor and not per SIP.
What is in it for the AMCs?
AMC is paying from its pocket for your life cover. This does not happen too often in financial services sector. So, what is the benefit to the AMC?
- They get a constant stream of fund flow through a long term SIP.
- Since the life cover ceases as soon as you redeem or switch out any units, it acts as a deterrent to move funds out of the scheme. AMC earns Fund Management Fee on your corpus (built into your NAV).
You must note that only equity schemes are covered under ICICI SIP Plus plan. Even with Birla Sun Life Century SIP, only equity schemes are eligible for insurance cover. Fund Management charges are higher for equity funds (as compared to debt schemes). That many won’t typically invest in debt fund schemes through SIP is a different matter altogether.
AMCs may also charge a higher exit load if you redeem units before a certain period. That may also act as deterrent to investors.
What is in it for the Investor?
You get life cover free of cost. The premium cost is borne entirely by the AMC.
Hence, the growth of your investment corpus will be exactly the same irrespective of whether you opt for life cover or not.
What are the problems?
You need to fill a separate form for availing this facility.
You cannot start ICICI Prudential SIP Plus from online portals such as MF Utility, Invezta, FundsIndia, Scripbox etc.
I could not even figure out a way to start SIP Plus from ICICI Prudential website either.
You have to sign a paper form and submit to your distributor, CAMS/Karvy offices or the AMC branch.
PersonalFinancePlan Take
Nothing wrong if you get life cover without any additional cost.
However, do not rely solely on life cover offered under such arrangements with AMC. As with any group insurance, you do not control this life cover (just like group health cover from your employer).
The AMC may change the terms and conditions of such life cover at its discretion. It may change the insurer or coverage amount or even terminate the life cover at its discretion.
It is always better to purchase a term plan of your own. Hence, insurance through mutual funds should not be your primary life cover. But yes, if you want an add-on cover and a SIP in an eligible scheme is a fit with your financial planning, you can opt for such life cover while starting SIP.
The drawback is that you will have to fill in a paper form to avail the facility i.e. the process is offline. So, if you want to do everything from your mobile or sitting in front of your computer, you will have to move out of your comfort zone. By the way, I have checked with only ICICI Prudential AMC. Quite possible other AMCs offer this through respective websites too.
This cover can be useful for those who are finding it difficult to purchase life cover otherwise due to an illness or medical condition.
As I understand, with ICICI SIP Plus, you do not have to provide any declaration of good health at the time of enrolling for SIP. Hence, the insurance company will have little ground for rejecting the claim. At least, that’s what I think.
However, with Birla Sun Life Century SIP, you have to provide declaration of good health. Hence, Birla Sun Life SIP may not be quite useful for those who have existing conditions as the insurance company will have a lot of leeway at the time of settling claim.
You must understand that the terms and conditions for availing the life cover may vary across AMCs. You must go through terms and conditions thoroughly before signing up for such a SIP.
2 thoughts on “You may get free life cover along with your mutual fund SIP”
Sir what is your take on Bitcoins
Hi Darpan,
I don’t invest in Bitcoins and have no plans to invest in Bitcoins either.