All you need to know about mutuals offering insurance guarantees


Many mutual fund companies in India have added a new feature to their plans – insurance benefits at no additional cost to capitalize on its popularity. This scheme allows investors who opt for a Systematic Investment Plan (SIP) for wealth building to simultaneously enjoy the benefits of insurance coverage at no additional cost.

You can avail the insurance option while completing the SIP investment form. You will benefit from free group insurance offers. These features can be used by investors in the 18-51 age bracket.

The idea may sound appealing since it gives you a mix of the two “is” essential to financial planning. However, also understand the limitations of this arrangement. Here are some facts you need to know about mutual fund plans with insurance coverages.

SIP Mandate

Your SIP investment tenure must be at least three years to be eligible for insurance coverage. If the SIP is terminated in the meantime or if the investor withdraws or changes before the minimum term, the insurance cover ceases. However, if the investor discontinues the SIP after three years, the insurance coverage will continue until the investor reaches the maximum eligible age of 55-60.

Amount of insurance coverage

The insurance cover depends on the amount of the SIP. Typically, in mutual fund investments combined with insurance, the coverage in the first year is ten times the amount of the SIP, increasing to 50 times in the second year. And from the third year it goes up to 100 times. For example, if your SIP amount is Rs. 1000, the cover for the first year will be Rs. 10,000; it will rise to Rs. 50,000 in the second year and Rs. 1 lakh in the third year.

Maximum cover to take

The maximum insurance coverage allowed under these schemes is Rs. 50 lakh across all plans and accounts held by an investor in a fund house. Some fund houses have kept the limit at Rs. 20,000,000. Compared to traditional term insurance, such a low coverage offer may not be sufficient for high-income investors. In addition, deaths related to pre-existing conditions are not covered.

Impact of withdrawal

Premature withdrawal before the duration of the SIP results in a 2% exit charge. In addition, this also leads to the termination of insurance coverage. There will be an exit charge if the investor dies and the nominee redeems the fund units.

SIP payouts continue in the event of death

In some of these mutual fund linked insurance products, even after the death of the investor during the term of the investment, the insurance coverage will cover the rest of the payments. The agent can continue to be part of the plan or claim the coverage proceeds.


Investors should know fund specific details before opting for such investments. The terms and conditions vary from one fund house to another. Supplemental insurance is new to mutual funds. As the coverage is part of a group insurance policy, in the event of a claim, you will need to contact the insurance company partner of this product and not the mutual fund company.

Ideally, you should separate the two for the best investment and insurance results. The two have unique goals that don’t mix.

The maximum duration covered by these plans is less than that of a typical term insurance plan. The coverage amount and age limit are lower than traditional term insurance.

Also, not all plans come with insurance benefits. Only certain specific plans offer these bundled insurance benefits, and you must choose them.

The author is the CEO of The opinions expressed are those of the author.


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