What are Insurance Mutual Funds?

What are Insurance Mutual Funds?

If you are wondering how these funds can actually play a part in your investments, let's look at their pros and cons.

Insurance Mutual Funds Investing in Insurance Mutual Funds

We are in a situation where there is a rise in the need and want for insurance - especially a life insurance cover. You can see the rising purchases of insurance policies, along with the need to save, invest, and more. There are funds put there that can actually be life-saving. Safety means that you need an added layer of protection - maybe that's why you need a mutual fund insurance cover.

Asset Management Companies are on the move, innovating new offers on mutual funds and their investors. A mutual fund with insurance is an idea of the mutual fund AMC. They are plans that are customized. So, if an investor opts for this investment option, they will have to pay around 0.5% to 0.75% as an additional expense ratio to make sure the mutual fund is complete even while he or she dies in between the maturity.

Understanding Mutual Funds that are Combined with Insurance

In India, mutual funds linked with insurance are not a very popular offering. However, there are AMCs like ICICI Pru MF, Reliance MF, and Birla MF, which provide this mutual fund and insurance bundle. Here's how it works. This service is often provided by AMCs with a substantial group insurance operation. The three AMCs mentioned above are all examples of this.

The AMC essentially provides group coverage for all mutual fund investors combined. The standard cover is 50 to 100 times your monthly SIP payment.

If you are wondering how these funds can actually play a part in your investments, let's look at their pros and cons.

Advantages of the Scheme

  • Life insurance is provided for free.
  • Investors are not required to pay a premium for insurance.
  • If the investor dies, the SIP will be paid out by insurance.
  • The insurance fund does not pass to the investor's family or nominee upon the death of the insured.
  • These insurance-wrapped funds are intended to pay out 50-100 times the SIP amount after two to three years of investment.
  • If the investor survives the duration of the SIP or redeems the investment, the insurance coverage will expire.
  • The insurance policy has a 60-90-day waiting period.
  • The waiting period does not apply in the case of accidental death.
  • It does not cover death as a result of a pre-existing sickness.

Disadvantages of the Scheme

  • Only selective schemes are available.
  • Insurance coverage is limited.
  • The initial waiting period for insurance coverage is 60-90 days.
  • Exit load of up to 2% is possible.
  • One of the key disadvantages of SIP insurance is that risk coverage terminates in the event of a withdrawal or changeover (partial or full). Investors may have to book a portion of their profits in order to switch to debt, or they may have to withdraw funds for whatever reason. If risk coverage lapses under such circumstances, it is meaningless.

Insurance Mutual Funds

Now, after you have read all this, you cannot still assume this is a LIC mutual fund just because it is insured. So, here we have some Insurance Mutual Funds for you.

  • Nippon India AMC
  • Aditya Birla Sun Life AMC
  • ICICI Prudential AMC

What is the Objective of this Plan?

The basic goal of investing in mutual funds is to attain financial goals and build wealth based on one's investment horizon, risk tolerance, and asset allocation strategy.

As a result, one should only invest in mutual fund schemes that provide free life insurance if they have a proven track record of outperforming their benchmarks and peer funds in the past and have the potential to do so in the future.

If the mutual fund(s) supplying the free life cover meet all of the important fund selection criteria, the investor should choose the add-on life cover. This will increase their overall life insurance coverage at no additional expense.

Investors should, however, continue to monitor the performance of these products on a regular basis. The availability of free life insurance should never be used to influence the choice to invest in or redeem these products.

If you want to invest in the fund house's program, you can take advantage of the free life insurance coverage.

However, this should not be the only reason you invest in the fund. Investors should choose a fund based on its historical performance as well as its personal risk tolerance, investment horizon, life objective, and so on. While it is a useful feature to have on your investments, investors should not be misled by it and should not base their fund selection solely on this feature.


You should look at these schemes as an add-on, but they cannot be your main investment. Also, they are not widespread or popular at the moment, which means the majority are not yet supportive of them. But they can have a small part of your portfolio.

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