Free term life covers with SIPs proving costly for MFs | Economic Times

Mutual funds offering free term life insurance along with investments in their schemes are having second thoughts about continuing with this facility as unexpectedly high claims in the wake of Covid-19 have made it unviable to extend this benefit. ICICI Prudential Mutual Fund and Aditya Birla Sun Life MF have put on hold this facility for investors making fresh investments through systematic investment plans. Existing investors, who opted for this facility, will continue getting its benefits.Two other fund houses Nippon India and PGIM India are yet to scrap this facility. Both the fund houses, however, did not offer this facility for two newly launched schemes — Nippon India Flexicap Fund and PGIM India Small Cap.ICICI Prudential Flexicap Fund, which was launched recently, also did not offer insurance. Only four fund houses in the industry have attached this feature with their products.“Increased cost of group term insurance post Covid-19, higher claims and reluctance to offer term insurance based on self-declaration by individuals have led to this decision,” said the product manager at a domestic fund house.Group term insurance costs have gone up after Covid-19, which has prompted many companies to raise premiums. This has increased the costs of insurance for fund houses. This facility was offered by the fund houses to encourage investors to continue with their SIPs for a longer period.Typically, an investor doing a SIP in an equity scheme gets an insurance cover of 10 times the monthly instalment in the first year. This rises to 50 times in second and 100 times in the third year. The maximum cover that an investor gets is ₹50 lakh across all schemes. The group term insurance cover is provided by the group’s sister company and the AMC is the master policyholder. This insurance coverage was offered across select equity-oriented mutual fund schemes to investors aged below 51 at the time of first investment.There is no additional exit load applicable for investors who have opted for SIP Plus investment other than the exit load as applicable to the mutual fund scheme.Financial planners said investors must buy a life cover separately rather than rely on deal packages like what mutual funds offered. “Free insurance with SIP should be treated as an add-on benefit. Once you have separate insurance, you can stop the SIP or redeem the scheme based on its performance, without worrying about insurance benefits,” said Viral Bhatt, founder, Money Mantra.