SHOULD YOU OPT FOR INSURANCE COVERAGE WITH MUTUAL FUND INVESTMENTS?
Mrs. Sharma and her husband could buy their own dream home at a very young age because they started investing early in mutual funds right after starting their first job. Within six years of their job, they acquired a good amount of corpus together for the down payment of the booking price for the house. This is how the power of compounding does wonders in mutual fund investments.
In
today’s scenario, almost all of us are aware of mutual fund investments and
their importance to achieve our financial goals over the long term. Also, how
crucial are mutual fund investments in our lives to plan and invest to achieve
a desired corpus in the future to achieve our financial goals and objectives,
such as buying our dream car or dream home, planning an overseas vacation, our
children’s higher education, starting a start-up, retirement funding, etc.
Today, the only person who hasn't heard of mutual funds is someone who lives
under a rock. We have been exposed to mutual funds since we were young, notably
because they are "subject to market risk." Since long ago, mutual
funds have been a popular investment product. An investor can easily invest in
it and potentially gain 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.
In addition, investors now have the option of increasing the level of insurance coverage they include in their investments. Let’s discuss the pros and cons of the insurance cover that comes with a mutual fund investment as well as its need.
Insurance cover with a mutual fund: An Introduction
Very few mutual fund companies provide their clients with an insurance plan in addition to their mutual fund investments. Such protection is offered in an effort to broaden the appeal of mutual funds and promote investment in them. All of the fund's investors are covered by this coverage, which is in the type of group coverage. Additionally, not all mutual fund types that fall within the purview of the fund house are covered by this kind of insurance. It is only offered in certain mutual fund schemes.
Eligibility for insurance coverage with mutual funds
Although the mutual fund offers term or life insurance to
all investors, doing so is contingent on meeting specific requirements.
v Only investors in mutual funds making
investments in the form of SIPs are eligible for such coverage.
v Investors making lump-sum investments in
mutual funds are excluded from the ambit of the insurance coverage provided by
the fund houses.
v 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 a SIP is three years. The insurance
coverage is valid until the investor reaches the age of 55.
v Such group policies do not require the usual
health checkups.
v It comes with an initial waiting period of 60–90 days. Death due to a pre-existing illness is not covered under this policy.
v There is an exit load of 2% on these mutual funds if the SIPs are stopped before the term of the insurance.
The sole criterion to qualify for the protection is a SIP
investment in the fund.
Amount of coverage provided with mutual funds
Most of these insurance providers are subsidiaries or parent firms of companies that mutual fund houses and insurance providers, such as AMCs like ICICI Pru Mutual Funds, Birla Mutual Funds, and Reliance Mutual Fund.
Typically, these schemes don't offer investors more than Rs 50,000 in coverage at the most. Additionally, the maximum cover per investor may not exceed Rs. 20,000 in some fund institutions.
Should one opt for mutual funds with insurance coverage?
Combining insurance with mutual fund investment can be one of
the best options available for investors. Such a combination helps individuals
meet the requirements of mutual fund investment along with the need for
insurance coverage. It will serve the dual purpose of protecting the family in
case of an unexpected event as well as taking care of one’s own as well as
their loved one’s dreams and aspirations in the long term.
Limitations
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, the cover lapses as soon as the investor redeems the money. Therefore, it cannot be used to substitute a personal life insurance policy that may be utilized to provide for the needs of the investor's family in the event of their passing. If the investor lives past the age of 55, the policy also lapses. The insurance coverage is used to pay the investor's SIP's tenure in the event of death, but it is not paid to the investor's heirs.
Conclusion
While combining insurance with mutual fund investing may seem like a great bargain, there is no one insurance policy that can ultimately cover all of the investor's and their family's financial demands. Don't ever choose a mutual fund solely for insurance coverage, either.
“Think wisely before
making a decision on combining your investments and insurance. It should be as
per your needs and not wants.”
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