Should You Choose SIP in Mutual Funds for Life Insurance?

Are you looking to invest regularly in mutual funds to attain your financial goals? Do you want to automate your investments in mutual funds? You can invest in equity funds through the systematic investment plan or SIP. It is a facility offered by Asset Management Companies or AMCs where you invest fixed amounts of money regularly in mutual fund schemes. However, many AMCs provide free life insurance to encourage you to invest in mutual funds through the SIP. Should you choose SIP in mutual funds for free life insurance? 

What is SIP Insurance?

AMCs have developed an SIP insurance innovation to encourage you to start SIPs in mutual funds. It offers free group term life insurance if you invest in mutual funds through the SIP route. 

If a SIP investor dies within the SIP tenure, the beneficiaries receive the death benefit from 20-120 times the monthly SIP. However, the life insurance cover stops when you redeem or switch your mutual fund investments before the minimum SIP tenure. 

Many AMCs specify a minimum age of 18 and a maximum age of 55 years for SIP insurance. Suppose an AMC offers life insurance cover of 10 times the monthly SIP instalment for the first year, 50 times the SIP instalment for the second year and 100 times the SIP instalment from the third year onwards. 

If your monthly SIP is Rs 10,000, you are entitled to a life insurance cover of Rs 1 lakh in the first year, Rs 5 lakh in the second year and Rs 10 lakh from the third year onwards. However, AMCs may specify a minimum SIP tenure of three years and cap the maximum insurance cover at Rs 50 lakh for SIP life insurance. 

Should you invest in mutual funds for SIP insurance?

You must not invest in mutual funds through SIP for free life insurance. It helps if you pick an appropriate mutual fund based on your risk tolerance to attain your financial goals. 

You must avail a term life insurance plan if you have dependents. It compensates the policyholder’s family with the sum assured called the death benefit on the policyholder’s death within the plan’s term. However, term life insurance has no survival benefits.

It would help if you choose a sum assured of around 10-15 times your annual income under the term life insurance plan. It ensures your family has enough money to enjoy their current living standards on the untoward demise of the breadwinner. 

SIP insurance does not offer a sufficient death benefit under the group term insurance plan. Moreover, the life insurance cover ceases if you redeem or switch your investments before the SIP minimum tenure. AMCs offer SIP insurance mainly for equity funds and some hybrid mutual funds. 

You must check the mutual fund’s expense ratio before opting for SIP insurance. It is the cost of managing the fund, and a higher expense ratio eats up the mutual fund returns. 

You can avail of SIP insurance in mutual funds that match your investment objectives and risk profile. It serves to enhance your life insurance cover. Do not invest in mutual funds through SIP for free life insurance or consider this an alternative to a term life insurance plan. 

For any clarifications/feedback on the topic, please contact the writer at

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