After life insurance companies, some mutual fund companies have started offering life insurance cover with mutual funds. Birla Sunlife, ICICI Prudential, Reliance mutual funds to name the few. Some other companies are also planning to launch this offer soon.
The offer is simple. You choose normal SIP amount, tenure, scheme and like that and opt for free insurance with the application form. No additional documents or medical tests are required; only certain details are to be filled up. Depending upon the tenure you've selected, you'll get life insurance of some fixed amount; calculated as x times of monthly SIP amount. Sounds good.
But can you believe someone will offer something to you free of cost? Let's look inside and check terms and conditions.
- There are no additional charges. But there is an exit load, generally of 2% if you withdraw your funds before completion of the specified term. If you stay invested for the complete term, you donot have to pay any exit load.
- Your life insurance cover ceases if you stop SIP or make withdrawals.
- The insurance is available in selected equity schemes. Those schemes may haven been consistent under-performing.
- Insurance cover received will be inadequate.So this facility is not substitute for term insurance.
- The insurance does not qualify for tax deduction purposes.
- The exit load of 2% will be charged even if you decide to switch between the funds of the same fund house.
- If you die due to pre-existing health problems you may not get the insurance amount.
- If the fund you have invested turns out to be a dud, you are stuck with it, as exiting means paying a heavy exit load.
- The minimum SIP amount in this scheme is far higher than the SIP amount in a regular scheme.
Looking at all this, I prefer to take online term insurance to cover risk and will separate insurance from investments.