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Insurance cover with mutual fund investments. Should you opt for it?

Written by - Akshatha Sajumon

January 12, 2022 4 minutes

Only a person living under the rock may not have heard about mutual funds today. We have grown up hearing about mutual funds especially that they are ‘subject to market risk’. Mutual funds have been a popular investment product for a very long time. It is an easy investment product that allows the investors to gain potentially higher returns at relatively lower costs. There are many types of mutual funds in the market for the investor to choose from like equity mutual funds, debt mutual funds or hybrid mutual funds. 

Apart from this, the investors now are getting the option of adding an insurance cover to their investment.

We discuss the details of such insurance cover that comes with a  mutual fund investment. The pros and cons of the same as well as its need. 

What is the meaning of insurance cover with a mutual fund?

There are very few mutual fund houses that provide the investors with an insurance cover along with their investment in mutual funds. Such cover is provided with an aim to increase the appeal of mutual funds and maximize investments in the same. This cover is in the nature of group cover and is applicable to all the investors of the fund. Also, this type of insurance cover is not provided to all types of mutual funds that are under the fund house. It is provided only on select schemes

Who is eligible for such insurance cover?

While the term cover or life cover is offered to all the investors of the mutual fund, providing such coverage is subject to certain conditions. 

  • Only investors of mutual funds making the investment in the form of SIPs are eligible for such cover. 
  • Investors making lump sum investments in mutual funds are excluded from the ambit of the insurance cover provided by the fund houses. 
  • Furthermore, the cover is provided only to investors falling under the age bracket of 18 years to 51 years and the minimum tenure of investment in the form of SIP is of three years. The insurance cover is valid till the time the investor reaches the age of 55 years. 
  • Such group policies do not require the need for usual health checkups. 
  • It comes with an initial waiting period of 60-90 days. Death due to pre-existing illness is not covered under this cover.
  • There is an exit load of 2% on these mutual funds if the SIPs are stopped before the term of the insurance.

Investment in the fund through SIP is the sole criteria to be eligible for the cover.

What is the amount of coverage provided with mutual funds?

Most such insurance cover providers are companies that have mutual funds and insurance providers under the same roof or parent company. Some examples of the fund houses that provide sich cover are AMCs like ICICI Pru Mutual Funds, Birla Mutual Funds, Reliance Mutual Fund. The cost of insurance provided is borne by the fund house. 

The cover provided by the fund houses is usually in the following pattern.

Period of investmentAmount of cover (in multiples of SIP)
1st year of investment10 times the amount of SIP
2nd year of investment50 times the amount of SIP
3rd year onwards100 times the amount of SIP

The maximum cover provided under such schemes is usually not more than Rs. 50,00,000 per investor. Some fund houses also restrict the maximum cover per investor to Rs. 20,00,000.

Should you opt for such covers?

Insurance with mutual fund investment sounds like a very good option. It will meet the requirements of mutual fund investment along with the need for insurance cover. However, this does not necessarily mean that it is a good or sound investment option. The cover provided by the fund house is a group policy and the amount of cover is restricted based on the amount of SIP made by the investor. 

Also, once the investor redeems the fund, the cover stands lapsed. So it cannot replace a personal adequate life cover that can be used to meet the needs of the investor’s family in the event of their death. The policy also stands lapsed when the investor survives till the age of 55. In the event of the death of the investor, the insurance cover is used to meet the tenure of the SIP of the investor but is not paid out to their kin.


While insurance along with investment in mutual funds sounds like a very good deal, it can definitely not be replaced with a sole insurance cover that can actually meet all the financial needs of the investor and their family in the long run. Also, never make the mistake of choosing a mutual fund just for the insurance cover.  

As always never mix your investments and insurance!

Image Source: Financial Express

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