When both spouses share the household income and expenses, there is indeed a need to insure their lives. Same holds for parents and children or business partners. And if this can be done jointly, there is the benefit of a single premium, among others.
The insurance industry has evolved over the years to cater to the positive changes in the society. One of the most popular offerings of the industry has been the term plan. It is a product designed to cover the primary breadwinner of the family but now we are seeing double income households where both members contribute to the income of the family. Even when one member is not earning, it is crucial to cover the lives of both through a joint life term plan.
What is a joint life term plan?
Just like a term insurance plan, joint policies provide life cover for both partners. A couple opting for joint term plan would not have to buy single individual term policies. This means a single premium amount for the cover of two people. While it’s primarily designed for married couples, business partners can also take it to protect their work. A parent can opt for a plan with child. Such a plan can help in taking care of future expenses of education or living.
“A joint life term plan is most preferred in the event where a married couple is looking at buying a term plan simultaneously. In case of a joint term plan, both the partners are entitled to individual covers, and also avail discount on the overall premium paid for the plan,” says Sameer Joshi, Chief Agency Officer of Bajaj Allianz Life Insurance.
Key features and benefits of joint life term plan
The biggest feature of a joint policy is also its biggest benefit. A single cover for two lives helps in big savings on premium and this gain can be enjoyed throughout the premium payment term. It means only one policy has to be managed with less hassle of tracking.
“A joint life policy comes around 25-30 per cent cheaper than two individual policies with the same specification. Joint term plans are advisable for couples who wish to buy term cover within their budget line and prefer ease of managing single policy rather having multiple policies serving the same purpose”, adds Anil Kumar Singh, Chief Actuarial Officer of Aditya Birla Sun Life Insurance.
There are different variants of joint term plan available in the market. The most important difference being single or dual death payouts. In some policies, only one death payout would be made and it would be done after expiry of one of the policyholders and the cover would expire after that. However, there are policies which offer dual payouts, at the time of death of both policyholders.
So even after the death of the first policyholder the cover would continue. Such a policy helps the family and nominee to better adjust to loss of family members. Dual payout policies also offer premium waiver option after death of first insured. In a few policies such an option is built-in or can be acquired by paying extra.
It is important to note that in dual payout policies the sum assured for primary and second policyholders could be different depending on the policy. The sum assured for spouse is generally 50 per cent of that of primary policyholder. However, this could vary based on insurer and policies.
The following example should provide more clarity on savings due to joint term plan. For instance, a 30-year-old non-smoker male pays Rs 10,250 (excluding GST) for a 30-year-policy term with a sum assured of Rs 1 crore, while a 30-year-old non-smoker female pays Rs 5,392 (excluding GST) for a sum assured of Rs 50 lakh. Hence, in this case the couple would pay Rs 15,642 for Rs 1.5 crore sum assured. On the other hand, if the same couple buys a joint term plan cover of Rs 1.5 crore sum assured with dual payout of Rs 1 crore and Rs 50 lakh respectively, the yearly premium would be only Rs 14,230. This means a saving of Rs 1,412 on yearly premium.
A home-maker or an individual with no income cannot purchase a traditional term plan but can get life cover under a joint policy. However, the sum assured would not be same as that of the primary insured. In many cases, it is 25 per cent of the primary policyholder’s applicable sum assured.
The benefit of such a policy is not limited to life cover and there are additional riders and features that enhance the financial security. Some policies offer a regular income to the surviving spouse even after the payment of death benefit, which is generally in addition to the death payout.
Policyholders can further add riders like critical or terminal illness and accidental death benefit to ensure a higher payout and financial support at the time of an unforeseen crisis. An extra payment would have to be made for adding riders.
“If riders are being added into the term plan, it is extremely important to understand what additional benefits these provide as well as the impact they have, if any, on the base benefit so that appropriate decision can be taken. Each of them have their own specific purpose and are useful for specific situations,” notes Akshay Dhand, Appointed Actuary of Canara HSBC OBC Life Insurance.
Same as individual term plan, buyers would also enjoy tax benefits under Section 80C and 10(10D), of the Income Tax Act, 1961 on joint term plan premium.
Things to keep in mind before buying joint term plan
Whether a single or dual payout policy, it is important to work out the correct amount of cover so that the nominee or the surviving spouse would require to maintain the same lifestyle even after the death of one of the policyholders. All the factors including the future expenses, financial responsibilities, liabilities should be considered while deciding the sum assured.
“Whether it is joint term plan or individual term plan, the most important aspect to keep in mind is one’s family’s financial responsibilities, which are dependent on the individual and the spouse. Accordingly one can decide the amount of cover and policy term,” says Singh.
It is always advisable to buy the policy as early as possible. It helps you to stay secure for larger number of years. Also the premium amount is always lower for younger couples
“Young married couples with children should consider buying a joint term plan keeping the children as the beneficiaries. Besides, buying at a younger age offers the policy holder a price advantage,” says Amit Palta, Chief Distribution Officer of ICICI Prudential Life Insurance.
It is extremely important to clarify the benefits of a plan before purchasing it to ensure there are no surprises at a later stage. You must know whether your policy has a single death payout or dual. Does it have an built-in waiver of premium rider and if not, you can get it added at an extra cost. Similarly, other riders should be studied before making the purchase.
What happens in case of a divorce?
Various options are available to a couple in case of a divorce and it depends on the structure of the policy. Some plans have the option to divide the joint plan into individual policies. However, there are plans where alteration is not allowed. In such a case the partners could decide to continue the plan or discontinue it.
“The treatment of a joint life policy after divorce or annulment differs from product to product, as per the underlying terms and conditions. In certain cases, it is possible to continue the policy as a single life policy. However intimation to the insurer is mandatory,” adds Joshi.
Drawbacks
An individual plan would allow a family to have higher cover as compared to a joint policy, where the sum assured for secondary policyholder could be only some percentage of that applicable for the primary policyholder. In Individual policies, policyholders could select riders according to their choices, while in joint policies, the benefits are same. In case of a single death payout, the spouse would end up without life cover after the death of the spouse and buying a new policy at an older stage could prove to be extremely costly.
It could be a problem to maintain the policy after divorce if the option of alteration into individual policies is not there.
If affordability is not an issue, one can always opt for single term plans, as a higher cover can be acquired together. It also provides freedom to have desired riders according to an individual’s choice. A joint term plan on the other hand provides the convenience of managing two policies at the time of one. But more importantly, it provides the financial leg room to afford cover for two lives for a more secure future. The value for money enhances further after addition of riders.
nirmala@outlookindia.com