life insurance

Is Mutual Fund Insurance For You?

When deciding whether or not to purchase insurance for your mutual funds, you should be sure you understand exactly what you're getting. For most policies, the payout will only occur after you die and only if your mutual fund has lost money since the time you purchased insurance coverage. Also, your beneficiaries will only get the difference between the market value of your investment and the amount that was guaranteed by your life insurance policy.

Example
Say you invest $25,000 and your premium ranges from .01 percent to .05 percent of your investment. The company you invested with guarantees that your mutual funds, plus an annual gain of between four and five percent-with a cap-out of up to 200 percent-will be there for your beneficiaries at the time of your death. If in the event the market goes down, having insurance will guarantee that your initial $25,000 investment will increase between four and five percent. When paid out, your heirs will only get the difference of the market value and the amount that was guaranteed-so in the case of your $25,000 investment, it is highly unlikely your beneficiary will get back the full amount.

Most consumers aren't that interested in buying mutual fund insurance because the stock market has sustained an annualized 11 percent return since the Depression ended. It is cheaper than most insurance; however, there is no real need for it. "It's a good safety net for older investors who want to be "risky" and try their hand at the market, but still want to be protected just in case things don't pan out like they had hoped," notes David Roush, CEO of Insurance.com.

Products and cost
Prudential Insurance Co.'s PruTector, Sun America's Asset Protection Plan and American Skandia's AS Goodwill coverage are all basic group term life insurance policies that you can buy in conjunction with a mutual fund from one of the companies. Depending on your age, the cost of mutual fund protection does vary, as do the fees added by certain companies.