How to get free life cover with mutual fund SIP

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The ongoing pandemic and the associated economic hardships serve yet another grim reminder of the importance of regular investments and adequate protection during uncertain times.

Combining these two principles of financial planning, mutual fund houses are offering Systematic Investment Plans (SIPs) with insurance. While your regular SIPs take care of your future finances, the insurance cover bundled free of cost with it also protects your near and dear ones in case of your unfortunate death. ICICI Prudential MF’s SIP Plus, Nippon India MF’s SIP Insure and Aditya Birla Sunlife’s (ABSL) Century SIP are examples of such SIP with insurance products. That said, this insurance, though offered without any medical tests, comes with a many conditions attached, akin to other insurance products in general. Here we try to elaborate on a few of them.

What is it

SIP insurance covers are basically group insurance policies clubbed with SIP. A SIP investor can add this cover at the time of starting her/his SIP in select schemes of the fund houses. Investors in such select MF schemes, within the age group of 18 to 51 years, are eligible for term insurance. The cover continues up to the age of 55 years (60 years in the case of ABSL Century SIP).

The life cover shall be 10 times the monthly SIP amount in the first year of investment, and rises to 50 times in the second year of investment. From the third year onwards, the cover extends to 100 times the SIP amount (Nippon India MF offers a cover of 120 times), subject to a cap of ₹50 lakh per investor across all schemes, plans, or folios.

For instance, if you have invested ₹1,000 per month in such schemes, your cover will be ₹10,000 in the first year, ₹50,000 in the second year and ₹1,00,000 from third year onwards. Upon your death, say, after the third year, your nominee will receive ₹1,00,000, along with the units of the mutual funds.

Existing investors have to open fresh folios to opt for such bundled insurance products.

Tenure, schemes

The above mentioned fund houses allow investors to opt for such bundled insurance only in select schemes.

ABSL, for instance, offers Century SIP only for six schemes out of about the 60 schemes offered by it. Nippon India offers its SIP Insure on 18 schemes and ICICI Prudential on 26 schemes only.

The insurance cover shall apply till the end of the SIP tenure, up until the investor attains the age of 55 (60 years in the case of ABSL) years. If one were to discontinue an SIP before three years, the term insurance cover will cease to exist. If the SIPs are discontinued after three years, the term cover shall continue for the remaining period, despite discontinuation of SIP.

However, during the discontinued period, the cover shall stand reduced to the market value of the units allotted at the beginning of the policy year, subject to a cap of ₹50 lakh. The term cover will also cease following any partial or full redemption of the units before the completion of the SIP tenure.


The insurance cover will only be provided for the first holder of the mutual fund. All insurance related documents and communications will be sent directly by the insurance company to the applicant. Similarly, upon death of the investor, the nominees must make the claim to the insurance company directly.

Investors must carefully note the circumstances in which the claims shall not be processed. For example, if a ICICI Prudential SIP Plus investor is deceased before the completion of 45 days, from the commencement of SIP instalments, the investor shall be excluded from the group insurance cover. However, the said rule doesn’t apply in the case of death by accident.

Fund houses can also reject claims in instances where the investor has not disclosed pre-existing diseases upfront in the application.

Should you go for it

Given the size of the cover available free of cost, the SIP with insurance product does not seem a bad idea altogether. For instance, if you opt for an insurance cover separately, the annual premium for a 30-year term cover for a sum assured of ₹50 lakh ranges between ₹4,000 and ₹10,500 (for a 30-year-old male).

But that said, the availability of insurance shouldn’t be a criterion for your investment picks. The investment style of the fund, its portfolio,returns, suitability for your goals and your risk appetite should play a more vital role in your selection process.Also, if a fund with this feature is underperforming, it is not ideal to stick on to it just for the sake of the cover.

Besides, even if one were to opt for such bundled insurance, do keep in mind that this is not a one-stop solution for all your life insurance needs. You will need an adequate cover outside of it.