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Insurance with Covers Bundled in one Product

 


   The idea of getting something free along with your main object of desire is always thrilling. Be it a conditioner with a shampoo or a toothbrush with toothpaste. The financial and investment space, too, has its share of add-on offerings. For instance, mutual fund schemes come with free life insurance cover, credit cards and home loans come with personal accident policies where customers do not have to pay the premium, and, of course, there are zero-cost covers for new cars.


However, skeptics will always point to the age-old axiom that there are no free lunches. After all, the company or the intermediary that offers freebies could have passed on the benefits in the form of lower charges instead, they argue.
Besides charges, there are aspects and implications that you need to take into account before giving in to any such temptation.

Mutual Fund Schemes With Free Life Insurance

Reliance Mutual Fund has been, of late, promoting its SIP Insure facility heavily. Birla Sun Life is another fund house offering a similar product named Century SIP. Under such schemes, typically, you invest under a list of specified schemes through the SIP (systematic investment plan) mode. Should anything happen to you before the expiry of the scheduled investment period, the insurance cover will get triggered. For instance, under Reliance MF's SIPInsure facility, the sum assured, which is equal to balance SIPs, is invested in the same fund chosen by the insured, in the nominee's name.


And, obviously, you do not have to pay any premiums for the life cover, usually provided under a group insurance scheme. The costs are borne by the fund house from the fund management charges investors pay. But, redemption under such mutual fund-cum-insurance schemes may not be as simple as a regular fund. There could be additional costs in terms of higher exit loads if one were to redeem these schemes within the no-exit period.


While the concept of putting in place a mechanism to fulfil a goal even in the investor's absence seems appealing, you also need to ascertain whether the attached insurance cover is commensurate with your current liabilities and dependants' future needs.


An overall term cover is much more comprehensive and easy to keep track of while evaluating your life insurance needs in future. It is much better to separate your insurance needs from your investment portfolio. If you were to have a combined insurance and investment plan via a SIP insure, etc, or a Ulip, your asset allocation gets extremely constrained by the funds offered and it becomes much more difficult to administer and rebalance yearly the overall allocations of the portfolio.


Then, such schemes also come with an upper limit on the life cover. For instance, if your MF insurance scheme offers a cover of . 10 lakh, it will not serve your purpose entirely if your requirement is for . 50 lakh.


To the extent of notional premium saved towards the free insurance provided by these schemes, the investor is at an advantage. But one must keep in mind that the primary focus should be on investment and, hence, the premium saved should not be the major consideration in choosing this option. If the scheme one is investing in is good and suits one's investment needs, the added free insurance is one more plus point for the investor.

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