Mutual funds revisiting free term insurance on SIP amid rising Covid-19 claims

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Insurance companies have increased premiums for life insurance products in the wake of rising claims due to Covid 19. That apart, insurance companies asking for added self-declaration on group insurance policies are giving nightmares to mutual funds that are offering free term insurance in their schemes as an added feature.

According to a notice-cum-addendum released by ICICI Prudential Asset Management Company that effective June 1 fresh registration under SIP Plus Facility (free term insurance for SIP investors) shall be discontinued until further notice. However, an existing investor who opted for this facility will continue to enjoy the benefits. Aditya Birla Sun Life MF has also paused the facility for new investors through the SIP (systematic investment plan) route.

On the other hand, Nippon India and PGIM India are yet to scrap this facility. Both the fund houses did not offer this facility to newly launched schemes – Nippon India Flexicap Fund and PGIM India Small Cap.

Term insurance on SIPs

Usually, an investor doing a SIP in an equity scheme gets an insurance cover of 10 times the monthly investment in the first year. This is further increased to 50 times in the second year and 100 times in the third year. This means a for a monthly SIP of Rs 1,000 an investor would get term insurance of Rs 10,000 for the first year of SIP investment. If SIP investments continue in the second year the term insurance cover would increase to Rs 50,000 and Rs 1,00,000 in the third year.

The facility of term insurance is revoked if an investor misses the SIP instalment or pauses the SIP despite staying invested in the scheme. The maximum cover an investor can get is Rs 50,00,000 across all schemes. The insurance coverage is offered to select equity schemes to investors aged below 51 years at the time of first investment.

The insurance coverage is offered by the group’s sister concern and the asset management company is the master policyholder.

Financial experts suggest that investors shouldn’t look at this as an insurance product rather consider it as an add-on feature and should hold an adequate standalone term life insurance.