Mutual Funds With Life Insurance Cover: How it Works, Eligiblity & Features

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Asset management companies integrate the life cover as an additional feature with their mutual funds. It helps them inculcate within customers the discipline of regularly investing in the fund through Systematic Investment Plans or 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 amount as death benefit. Furthermore, individuals must know various other aspects about this mutual fund with life insurance cover.

Some asset management companies (AMCs) let their customers enjoy the benefit of mutual funds and insurance policy at the same time by investing through SIPs. As a result, investors can build and grow their wealth and get a life cover simultaneously.

AMCs provide life insurance facilities on top of mutual funds free of cost. With this extra benefit, they primarily focus on encouraging 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 need to put your money in the fund through SIPs on due 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 give life cover 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. In the second and third year, it can increase to 50 times and 100 times your SIP amount, respectively.

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

• You must be in the age group between 18 and 50 years.
• You need to invest in a mutual fund with regular SIPs.
• It is also necessary to continue your SIPs for up to 3 years to get insurance coverage. You will not be eligible for this scheme if you discontinue paying your SIPs before the period.
• Both 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.

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.
• The insurance companies do not charge any additional amount for the life cover. Customers will get it free of cost if they meet the eligibility criteria.
• The sum assured amount depends on the fund value. However, there is a maximum limit to the sum assured amount.
• The amount of life cover increases in the 2nd and 3rd years.
• There is a maximum age limit after which life insurance coverage gets discontinued.
• Nominees cannot get life cover by applying to AMCs. They must get in touch with 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: By checking the past performance of the mutual fund with the life insurance cover, you can assess how it can grow in future. It will also give you a rough picture of the fund manager's expertise.
• Consider Charges of the Fund: In a mutual fund, you need to pay several fees, including the entry load, expense ratio, transaction charge, etc. All these can reduce the cost-effectiveness of your fund.
• Check Lock-In Period: You should also check whether you are going to invest in an open-ended or close-ended fund. You cannot redeem your fund units within the lock-in period in a close-ended fund. So, these are relatively less liquid in nature.

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 does not get discontinued.