Did You Know Your SIP Comes With A Free Term Life Insurance? – Goodreturns

What is SIP Insure?

Several mutual fund companies provide free term life insurance as an added benefit to those who participate in their schemes via SIP. This is known as SIP insure, and it simply functions as a supplement to the investor’s current insurance coverage.

How does SIP Insure function?

Mutual funds that are insurance-linked Funds provide group term insurance coverage to investors at no additional cost. The life insurance coverage is proportional to the amount of the SIP and lasts as long as the investor keeps the investment. The investor receives mortality insurance (death benefit) ranging from 20 to 120 times the monthly SIP on the death of the investor within the SIP term.

Let’s Understand with ABI AMC’s example

Say, if your monthly SIP is Rs 10,000/ month

Coverage in the 1st year = 10,000 x 20 = Rs. 2LCoverage in the 2nd year = 10,000 x 50 = Rs. 5LCoverage in the 3rd year = 10,000 x 100 = Rs. 10L

The SIP component is the same as with other MF SIPs, however, the insurance coverage and duration vary per AMC. To offer insurance, AMCs purchase Group Term coverage from an insurance firm. The premium is borne by the AMC.

Age limit and termination

Mutual funds provide a minimum and maximum entrance age, which may vary from fund to fund.

Min age: 18Max age: 51Min SIP tenure: 3 YearsMax insurance amount: 50L

SIP insurance coverage will end when the investor redeems his or her investment. The insurance coverage will be terminated in the following circumstances:

Upon reaching the maximum age limitRedemption / switch-out (in whole or in part)After the SIP termInvestor defaults on SIP instalments

However, many AMCs only provide free life insurance if investors choose a 36-month SIP.

Should you make an investment?

Investment is heavily dependent on the scheme’s success. However, investor before selecting a free SIP insurance plan should ensure that such a feature is available in schemes that have consistently performed over a long period of time and have crossed their benchmark on a regular basis.

When you withdraw even a small amount to reach your objective, your coverage will be terminated. You may also be required to pay the penalty. Investor should not select the “SIP insure” option just for the “insurance component.”