A recent addition to the mutual fund universe is the SIP Insurance . Even though it is said that investment and insurance are to be kept aside, the devil is in details here. There are few advantages in this product with some negatives also. The first advantage is that it is an optional facility. This facility is offered by different fund houses such as Reliance, ICICI Prudential, Birla Sunlife and other fund houses offer this product. The insurance is a Group Insurance paid by the AMC. The insurance continues till 55 years of Age of the investor or till the SIP is continuing which ever is earlier. The insurance is free. Insurance starts from 5 times the Monthly SIP amount and goes on till 110 – 120 times of the Monthly SIP amount. In case of the death of the investor, the balance is used to investment and transferred to the nominee of the investor. The nominee can withdraw the funds any time.
So far so good. but the conditions here. This is called the devil in details.
- There is a perpetual Exit load of about 2%. The exit load increases in absolute terms with the increase in amount invested. The exit load applies even in case of the death of the investor. But in normal investment, there is no exit load after 1 year. (generally 1% in the first year)
- The Insurance is valid only while the SIP is in force. In case you stop the SIP insurance cover goes off.
- Lack of flexibility – Since the SIP insurance is valid only till SIP is in force, you need to continue investing to have the Insurance. This is applicable even if the fund is under performing.
- Death is not covered in the intial period of 3 months. This is anyways pittance. But the exit load applies.
- Death due to pre-existing diseases not covered.
- It is always said that you stay in the fund for long time. but you should have the flexibility to reorganize the portfolio. This flexibility is not available in these Sip Insure funds
- Not all the funds managed by the AMC doesnot have this. It is only limited to some of the funds chose by AMC.
- There is a Cap on the insurance amount.
With all these, a normal SIP with a term plan offers more flexibility at less cost in the long term. It is advised to choose wisely for any such attractive schemes.
Personally I have not interested in any of these SIP insure. In fact I don’t prefer SIP itself. (More on that in a different post).
Disclaimer : These are completely my personal views and I am not a certified adviser for any financial product at the time of writing this article. It is my experience of reading and going through various information available. Readers are advised to take their own additional information before making their own choices.