PARK Financial Advisors

We often end up with high priced insurance policies like ULIP’s when seeking a way to build up a corpus for planning our milestones. This is mainly because the so called ‘free insurance cover’ termed by many agents grabs our attention at the very first instant. However, there are no such things as free lunches as ULIP’s have mortality charges which are deducted from the fund value.

Milestone planning is best done through the mutual fund route. A regular and systematic investing approach ensures that your corpus grows to the desired value to fulfill your milestones. Milestone planning now couldn’t have got a better push via the mutual fund route as few fund houses now are offering free insurance cover along with investment in equity mutual funds via the SIP route. However, the term ‘free’ here comes at a cost of locking your investments with the fund house as the insurance costs will be recovered from the expense ratio over time. But yes, technically it is free as you are not loosing a single additional penny from your pockets.

There are currently two fund houses; namely Birla Sun Life and Reliance who are bundling insurance on SIP investments. However, there is a stark contrast between both policies and cater to different needs of individuals.

The Reliance SIP Insure works on the principle that in the unfortunate event of the demise of an investor during the tenure of the SIP, the insurance company will pay for the balance amount towards the remaining unpaid SIP installments. Going forward, the nominee will not be liable to make any further contribution towards the fund as the rest of the installments will be made by Reliance. This greatly resembles a child plan wherein the investments continue despite the death of the parent.

The minimum period of contribution towards the fund is 3 years and maximum period of contribution is 15 years or till the individual attains 55 years of age, whichever is earlier. The insurance cover ceases when the investor stops the SIPs or attains 55 years of age. On death of the holder, an amount equivalent to the aggregate balance of unpaid SIP installments is paid, subject to a maximum of Rs.10 lakhs. There is an exit load of 2% if the accumulated units acquired or allotted under this scheme are redeemed or switched out to another scheme before the maturity of SIP tenure as opted by the individual.

The Birla Century SIP provides a plain insurance cover up to the 100 times the monthly installment amount. In the unfortunate event of the demise of an investor during the tenure of the SIP, the life insurance company will pay to the nominee, assigned by the investor 10 times the monthly SIP installment in the first year, 50 times the monthly SIP installment in the second year and subsequently 100 times the monthly SIP installment from the third year onwards subject to maximum cover of Rs. 20 lacs per investor. The insurance cover ceases upon completion of 55 years of age, discontinuation of SIP before 3 years from the commencement of the SIP, or if Investor redeems (fully or partly) / switches-out (fully or partly) units, purchased under SIP, before completion of the SIP tenure.

In this scheme, investors have the option of stopping the SIP after a period of three years. In that case, the insurance cover continues @ of the fund value, which means that investors will get life cover equal to the value to their fund. Thus unlike a ULIP, this scheme provides both; the fund value and sum assured in case of death.

Investors can choose between any of the two schemes depending on their needs. The Reliance SIP Insure can be availed instead of a child plan to plan your child’s future whereas the Birla can be used as a plain vanilla insurance cover. One should note that both schemes do not provide adequate insurance cover an additional term cover should be availed to get your self adequately insured.

PARK Financial Advisors
www.parkfinadvisors.com
info@parkfa.com