You recently took a huge home loan of Rs 50 lacs jointly with your wife. You and your spouse have been planning to purchase a term life cover to cover your share of home loans.
A friend told you about joint life insurance plans, where both of you could be covered under the same insurance plan. If you go for a joint life plan, there is no need to purchase to separate covers.
What should you do? Let’s find out.
What are Joint Life Insurance Plans?
Under joint life insurance plans, two persons (you and your spouse) are covered under the same life insurance plan.
You can buy Joint Life Insurance only with your spouse.
I will refer the lives covered under the joint plan as Principal Life Assured and the Spouse Life Assured. By the way, Principal Sum Assured could be either husband or wife.
There are variants of Joint Life Insurance plans
- The death benefit (Sum Assured) is paid on the first death basis. Hence, the insurer pays the Sum Assured on death of Principal Life Assured or the spouse. The insurance plan ceases on the payment of Sum Assured. Aegon Life iSpouse plan falls in the category.
- The death benefit is payable on death of each life. In the event of death of one of the life assured, the Sum Assured is paid out and the policy continues with reduced premium. The policy terminates with payment of Sum Assured after death of second life assured. Bajaj Allianz iSecure falls in this category.
Sohan purchases a joint life insurance of Rs 1 crore with his spouse.
First Death Basis: If Sohan passes away, his spouse will get Rs 1 crore and the policy will cease. Similarly, if his wife were to pass away, he will get Rs 1 crore and the life cover will cease.
Benefit on Death of Each Life: In case Sohan passes away the insurer company will pay Rs 1 crore and the life cover for the spouse will continue with reduced premium. Thereafter, the insurance company will pay Rs 1 crore to the nominee as and when Sohan’s spouse expires and the cover will cease.
Alternatively, if Sohan’s spouse were to die first, Sohan will get Rs 1 crore and policy will continue with reduced premium.
Points to Note
Under a few plans, the Sum Assured for Principal Life Assured and spouse is compulsorily equal. Under other plans, the Sum Assured for spouse is limited to a certain percentage of the Primary Sum Assured. Not applicable for first death basis plans.
Under some plans, the premium for the Spouse Life Assured is waived off in the event of death of Principal Life Insured. However, the premium is not waived off if the spouse were to pass away. Not applicable for first death basis plans.
What are the benefits?
- You do not need to purchase separate covers for you and your spouse.
- The premium for a joint life cover is slightly lower than premium for two individual plans. More on this later.
- Under some plans, spouse may not be required to pay any premium in the event of death of the Principal Life Assured.
What are the issues?
You lose out on flexibility if you opt for joint term life plans.
Under some of the plans, you may lose control over the coverage amount. For instance, PNB Metlife Mera Term Plan allows coverage for the spouse only up to 50% of the Principal Life Assured. For instance, if you purchase term cover of Rs 1 crore under joint life plan, cover for your spouse will be capped at Rs 50 lacs.
Under Bajaj Allianz iSecure plan, Sum Assured for husband and wife is equal.
It is quite possible that your life insurance requirement is Rs 1.5 crore and your spouse’s life insurance requirement is Rs 1 crore. Joint life insurance plans will fall short in such cases.
In case of divorce, the insurer may not allow you to be jointly covered under the same plan. Only the Principal Life Assured will continue to be covered under reduced premium. The Spouse Life Assured will have to purchase a fresh life cover.
What about tax benefits?
You get tax benefit for the premiums paid towards joint life insurance plans under Section 80C of the Income Tax Act.
Are these plans cost effective?
I will list out the premium details for Bajaj Allianz ISecure Plan.
For joint term life insurance of Rs 1 crore on life of a 35 year old couple (Rs 1 crore each of death of Primary Sum Assured and Spouse Sum Assured) for 25 year term, the annual premium works out to Rs 26,940.
Had the same couple gone for individual plans, the annual premium would have been Rs. 15,481for the husband and Rs 12,876 for the wife. Hence, the total premium works out to Rs 28,357.
The difference in premium is only Rs 1,417. Not a major difference.
In my opinion, the difference is too small. To save Rs 1,417, you have to get into unnecessary restrictions of a joint life insurance plan.
Do note that I have compared life insurance premium for only Bajaj Allianz iSecure plan. Other insurers may follow different underwriting practices and may throw different premium results.
There is nothing wrong with a joint life insurance plan. It is just that you have to sacrifice a lot of flexibility. There is no significant cost saving either.
You are better off purchasing individual plans rather than going for joint life plans.
I wouldn’t go for a joint life insurance plan. Will you?