What are Mutual Funds with Life Insurance Coverage?

Asset management companies integrate life insurance as an additional feature with their mutual funds. This helps them inculcate in customers the discipline of regularly investing in the fund through Systematic Investment Plans (SIPs).

Due to the life insurance component, investors can ensure that if they pass away before reaching the specified maximum age, their nominees can get a lump sum as a death benefit. Furthermore, individuals must know various aspects of this mutual fund with life insurance cover.

Some asset management companies (AMCs) let their customers enjoy the benefits of mutual funds and insurance policies simultaneously by investing through SIPs. As a result, investors can build and grow their wealth and get life insurance coverage simultaneously.

AMCs provide life insurance facilities in addition to mutual funds free of charge. This extra benefit primarily encourages customers to invest and build a habit of paying SIPs regularly.

Here is all you need to know about how this mutual fund with a life insurance cover works:

• Investors Make Deposit their Amount: As an individual investor, you must put your money in the fund through SIPs on time. The fund manager allocates a certain percentage of the fund value to an insurance scheme. AMCs generally tie up with an insurance company to provide life insurance coverage to their customers.
• A Group Life Insurance Plan for Investors: The insurance company initiates a group insurance plan for the fund. They include all the eligible investors under the ambit of this life cover. If they pass away prematurely, their nominee will get the life cover and the fund value when they make a claim.
• Sum Assured Amount: Asset management companies generally give 10 times the SIP value as the sum assured in the first year of your inclusion. It can increase to 50 times and 100 times your SIP amount in the second and third years, respectively.

Following are the eligibility parameters that you need to meet to qualify for this scheme:

• You must be between 18 and 50 years old.
• You need to invest in a mutual fund with regular SIPs.
• To get insurance coverage, you must also continue your SIPs for up to 3 years. You will only be eligible for this scheme if you continue paying your SIPs before the period.
• Indians and Non-Resident Indians (NRIs) investing through SIPs can get insurance coverage.

Note: All these eligibility parameters may vary across fund houses that offer this scheme.

The following are some notable features of this scheme:

• The life insurance covers come on a group basis. All the individual investors who meet the eligibility standards are part of that group.
• Insurance companies do not charge an additional amount for life cover. Customers who meet the eligibility criteria receive it free of cost.
• The sum assured amount depends on the fund value. However, there is a maximum limit to it.
• The amount of life cover increases in the 2nd and 3rd years.
• There is a maximum age limit after which life insurance coverage is discontinued.
• Nominees cannot get life cover by applying to AMCs. They must contact the partnered insurance company to get the sum assured in case of the investor’s premature demise.

Following are some aspects you should ideally keep in mind while investing in a mutual fund that offers life cover:

• Look at the Fund’s Performance: You can assess how it can grow by checking the mutual fund's past performance with the life insurance coverage. It will also give you a rough picture of the fund manager's expertise.
• Consider Charges of the Fund: A mutual fund requires several fees, including the entry load, expense ratio, transaction charge, etc., which can reduce the fund's cost-effectiveness.
• Check Lock-In Period: You should also check whether you will invest in an open-ended or closed-ended fund. In a closed-ended fund, you cannot redeem your fund units within the lock-in period, so they are relatively less liquid.

Here are some of the reasons why AMCs provide insurance coverage through mutual fund schemes:

• Extra Values for Investors: Makes investment more appealing.
• Customer Retention and Attraction: Helps attract new investors while keeping existing ones.
• Improved Investment: This makes the scheme more competitive towards other mutual funds.
• Risk Reduction for Investors: This provides financial safety and lowers the risks of investments.
• Regulatory Compliance: Ensures regulatory compliance and safeguards investor interest.
• Marketing and Branding: Enhancing marketing efforts, building brand value.

A mutual fund with life insurance cover lets individuals get an additional life cover without paying any premium against it. The asset management company ties up with an insurance provider to give coverage to all eligible investors. Individual customers only need to positively complete their SIPs on time to ensure that their life cover is maintained.