Here’s how monthly SIP can fetch you Rs 50 lakh life cover

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How about a mutual fund company offering you free life insurance? You like the idea, right? There are a couple of fund houses such as PGIM India Mutual Fund, Nippon India Mutual Fund and Axis Mutual Fund that offer term insurance as you start Systemic Investment Plan (SIP) with them. Called SIP Insure, it is an additional feature with select MF schemes that provides proportional life insurance coverage against the monthly SIP amount you run in the scheme.

For example, Nippon India offers a life cover 10 times the SIP during first year. It becomes 50 times during second year and 120 times from third year onwards. However, the maximum coverage is capped at Rs 50 lakh. So, if you run a monthly SIP of Rs 10,000 in one of the designated MF schemes, you will have a coverage of Rs 1 lakh during first year, Rs 5 lakh during second year and Rs 12 lakh from the third year onwards.

“Nippon India SIP Insure facility is an add-on feature of life insurance cover under Group Term Insurance to individual investors opting for SIP in the designated schemes,” says Nippon India MF.

With PGIM India MF, Rs 10,000 monthly SIP will give you Rs 2 lakh cover in the first year, Rs 7.5 lakh cover in the second year and Rs 12 lakh third year onwards up to Rs 50 lakh.

“The life insurance cover ranges from 20 to 120 times of the monthly SIP instalment, subject to maximum cover of Rs 50 lakh per investor, across all schemes/plans and folios*. Unlike an insurance policy, where one needs to make a declaration of good health at the time of taking the policy, there is no such mandate in case of Smart SIP,” PGIM India Mutual Fund said in a statement.

Should you go for it?

There is no harm. If you already have life insurance coverage, it will give you some additional coverage. If someone is unable to fetch life cover for some reason, they may easily secure it through this route.

“No medical tests are required. The declaration of good health is required with PGIM India MF, but not with Nippon India,” said Kirtan Shah, co-founder at SRE Wealth.

Points to note

Traditional insurance policies come with a waiting period. Since SIP Insure is a group cover, no waiting period is applicable. “There is no waiting period for insurance. The cover starts from the first SIP itself,” said Shah.

Note that not all schemes will have this feature. Shah said PGIM offers it for all schemes except small cap, arbitrage and debt schemes. Nippon has it for select schemes in the equity and hybrid category.

If you already have an SIP running in any of these schemes, you may approach the fund house to offer the insurance. “There is an option to add this feature in your existing SIPs as well provided your residual tenure was three years or more as on Dec 17th 2018,” says Shah.

SIP Insure is an attractive option to have a life cover, but it cannot be your primary insurance cover. One must have adequate term insurance cover as per one’s financial needs.

Notably, Aditya Birla Sun Life AMC and ICICI Prudential AMC also had this feature, but they have rolled it back for new investors until further notice. Industry sources said the claims experience post Covid-19 drove group insurer providers to refrain from offering more insurance through this route. Since medical tests are not mandatory, the risk factor here proved costlier for the group insurers. Besides, markets regulator Sebi doesn’t want mutual fund companies to sell or market insurance, the source says.

SIP Insure is a lesser-known feature with a great value-add. Consider buying it lest the rest of two AMCs take it back.