A life is too precious to put a price on it. However, life insurance plans appear to do exactly that. An estimation of the value of the life to be insured is made depending on a number of predetermined factors. A policy is then provided for a fixed tenure or for life that will benefit the insured individual’s near and dear ones in the event of death or any ill happening.
Most life insurance policies are created for separate individuals based of factors such as age, income, health, pre-existing illnesses, and lifestyle (active or sedentary). However, there are joint policies that are now available that cover the entire family or a couple together. Joint policies ensure that both members of the family are insured together so that if anything happens to either spouse, the other remains financially stable. Joint life insurance policies can also cover a child instead of a spouse. Some versions of joint life insurance policies cover business partners as well.
Types of Joint Life Insurance Plans
There are two types of joint life insurance plans.
- ‘First death’ – These joint plans only pay a sum on the death of the first spouse, and the cover will cease to continue.
- ‘Death of Each life’ – These joint plans pay-out at the death of the first spouse, and the cover will continue with reduced premium. The company will again pay-out a sum to the nominee on the death of the second spouse.
Some of the joint life and term insurance plans currently available in the market are the PNB Metlife Mera Term Plan, Aegon Life iSpouse Insurance Plane, Baja Allianz iSecure Plan, HDFC term Assurance Plan, SBI Life Smart Hamsafar, LIC Jeevan Sathi Plus, and others.
Some of the factors that should be considered while choosing between individual and joint life insurance covers are:
- Cost Pricing
- Terms and Conditions
- Tax Benefits
- Ease of use
- Premium Waiver Benefit
- Divorce or Separation
- Benefits at Maturity
The initial cost and premiums paid for joint insurance policies tend to be cheaper than the premiums for two separate individual policies. However, for most policies there does not appear a major difference in the cost. In fact, for some joint life insurance plans the premium paid turns out to be higher than the premium for two individually tailored plans.
Terms and Conditions
Under individual life insurance policies, the terms and conditions of each policy can be picked depending on the individual needs of the spouse to be insured. However, in the case of joint insurance policies, the terms and conditions for both spouses are the same.
Both individual and joint policies give the insured tax benefits under Section 80C of the Income Tax Act. For some life insurance policies, the pay-out received by the spouse or the children in the event of death is also tax free under Section 10 (10D) of the Income Tax Act.
Ease of Use
In the case of individual plans, the premiums for each plan need to be paid at different times depending on the insurance provider. However, for joint life insurance plans, a single premium is required to be paid. Additionally, documentation for both spouses can be done at one instance, and unnecessary paperwork is avoided.
While individual plans allow an insurance of any amount desired by the individuals, the joint life plans might be a bit more rigid for the spouse of the Principal Life Assured. Some of them allow for coverage of only 50%, and only 25% if the spouse is a homemaker. For example, the PNB Metlife Mera term Plan allows a maximum limit of INR 50 lakhs on the spouse and INR 25 lakhs if the spouse is a homemaker. As opposed to this, individual plans allow you the flexibility of choosing the amount of cover that you prefer without any pre-set limitations.
Individual life insurance policies naturally pay out at the death of the insured. The rules for joint life plans differ depending on the type of policy chosen. A ‘first death’ joint plan allows you to make a claim for the coverage amount in the event of death of either insured individual. However, once a claim is made, the insurance cover expires. The surviving individual will need to buy a new plan, if they want their cover to continue. Alternatively, under the ‘death of each life’ plan, the insurer will make a pay out on the death of each insured individual.
Premium Waiver Benefit
Individual or ‘First Death’ based joint life insurance plans do not give you any premium waiver benefits. However, the ‘Death of Each Life’ joint life insurance plan has the added benefit of a premium waiver after the death of the first spouse. This policy does not require the surviving spouse to pay any further premiums for the remainder of the policy term. It also provides them with a regular monthly or annual income based on the total policy cover.
Divorce or Separation
Divorce or Separation does not affect individual life insurance policies. However, in the case of a joint life insurance policy, this may turn problematic. The policy cannot be stopped or divided among the spouses. It continues to exist as a single life insurance policy. If one spouse decides not to pay his or her part of the premium, the policy will cease. To continue with the policy, the other spouse will have to take on the burden of paying for the other spouse as well. Having individual life insurance policies avoids this type of problem.
Another problem that may occur is where the insurer has clauses that do not allow joint coverage in the event of a divorce. Coverage under the policy will only continue for the Principal Life Assured, possibly under a reduced premium. The second spouse will have to purchase a fresh life insurance cover.
Plans offer riders that cover accidents, disability or critical illnesses. These riders pay out a specified sum for medical treatment. Again, these vary from one plan to another for both individual and joint life insurance plans. It is advisable to look at each plan and pick the option that best suits the individual and the spouse.
Benefits at Plan Maturity
Some life insurance plans provide pay-outs only in the event of death, while others provide added benefits as a percentage of the Sum Assured for completing a specified term duration. This varies for all plans on a case to case basis, and hence all plans need to be considered individually before choosing any of them.
For example, take the case of the Aegon Life iSpouse Insurance Plan. This joint insurance plan offers a pay-out at the death of the first spouse and regular monthly payments to the surviving spouse. The surviving spouse receives an amount equal to 100% of Sum Assured on the death of the first spouse, plus a regular monthly income of 1.75% of the Sum Assured for the next five years. However, in the event that both spouses survive the entire policy term, no benefit is payable, which constitutes a financial disadvantage.
Some other points that should be considered while choosing a life insurance plan are the premium amounts of the plan, gross pay-out of the plan, the sum assured, the additional benefits, the policy term, the surrender values, and the claim settlement ratios.
Both individual life insurance plans and joint life insurance plans have their advantages and disadvantages. It is important that the individual and their spouse look at all the options carefully before deciding whether or not to invest in a joint life insurance plan.
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