Academy of BFSI,

Joint Life Insurance: Bonding along and Beyond

If you live to be a hundred, I wish to live a hundred minus one, so I never have to live without you.  –Anonymous

The quote may sound selfish, but it shows how much you would want to be with him/her throughout your life. It is not for nothing that marriage is called a divine partnership. The two of you essentially promise to share your whole life together – through the good and the bad. It, thus, becomes your duty to ensure your partner is protected from any eventuality in life, and to be there for them in their hour of need, no matter how often it arrives.

 

 

 

Introduction

Sharing a life insurance plan is just another way to ensure that you are able to provide for each other.

Life insurance has traditionally been designed to cover the life of the primary breadwinner of a family. However, with changing times, particularly with the rise in the number of working couples, disintegration of Undivided families, an increasing need is now being felt for life insurance cover for the spouse also. One way to effectively do this is by opting for a joint life cover.

What is joint life insurance?

Joint life insurance, as the name suggests, offers the opportunity to cover oneself along with spouse under one contract. This is a comprehensive protection plan with multiple benefits for you and your spouse. This could be an endowment, or a term plan sold physically or online. It ensures that the future of your family is secured, if either of you are not there.
It is a pay-out which an insured receives in case of death of his other insured partner during the period. Usually, when you apply for a life insurance policy, you mention a nominee or beneficiary. In Joint Life Insurance, both you and your partner will be the owner as well as the beneficiary. So, in case something happens to one of you, the other will receive the benefit of the life cover.

Types of Joint Life Insurance:

Just like with an individual life insurance plan, you have options in the Joint Life Insurance category too. It can be either a basic simple term plan or an endowment plan. The only difference is; the plans covers two lives instead of one.

Joint Term Plan: Similar to regular life insurance, you and your partner pay a premium for a fixed period of time, during which you can claim for the life cover amount in case either one of your dies. However, the cover expires both of you survive till the end of the term. You or your partner will then have to buy another life insurance cover at a revised rate of premium.
Joint Endowment Plan: An endowment policy also has an investment/savings aspect. Like a term plan, it is valid for a particular period of time—ideally until your retirement begins . After this period of time, your insurer pays you a certain amount. This is called the ‘endowment’ or in general the Maturity Benefits. Similarly, the joint endowment plan promises you and your partner an assured Maturity Benefits after the policy expires. This is true even if one of you passes away. If that happens, you get the cover after your partner’s death and the endowment money after the maturity of the agreed period. The premium payments, however, do not have to continue after the first death, which is popularly called waiver of premium in insurance parlance.

Let us examine joint life term insurance more in detail.

Features & benefits

Some joint life term policies pay out on first claim basis, i.e. the sum assured is paid on the death of whomever of the two policy holders dies first and the policy terminates. However, in case of certain other joint life policies, there is a payment on the death of each of the two insured respectively.

Some policies also offer additional benefits. For example, if either one of the spouses dies, some policies provide a regular income to the surviving spouse for a fixed period (up to 60 months in some cases). This regular income is in addition to the death benefit paid to the surviving spouse. What is more, in some policies there is an extra amount paid along with death benefit if the death is due to an accident, option of adding an Accidental Death Benefit rider.

Some joint life plans also provide the option of adding a critical illness rider to the base policy. Further, some recently launched joint term plans also provide additional benefits like in-built accidental death benefit and in-built terminal illness (an advanced or rapidly progressing incurable and incorrigible medical condition) benefit.

Reasons to consider a Joint Life Insurance Policy

A key reason why couples could consider getting any type of joint life insurance is to avail of the premium waiver benefit, as it turns out to be cost-effective in the long run. If one partner passes away, the surviving spouse is not only entitled to receive the full assured sum on the primary policyholder’s cover, but he/she also does not have to pay future premiums to keep his/her cover for this type of joint life insurance in force.

To illustrate: A couple – husband aged 36 and wife aged 35, choose from the many types of joint life insurance policies for INR 50 lakhs and INR 25 lakhs respectively. In case of the husband’s death, the wife will get the sum assured of INR 50 lakhs. Additionally, her own life insurance of INR 25 lakhs will continue without her having to pay the premiums.

In some policies of joint life insurance, in case of one partner’s death, the beneficiary may opt to receive either a lump sum or monthly payments for up to 10 years. In case of the main policyholder’s death, the policy continues for his/her partner and all future premiums are waived off. If the spouse, not the main policyholder, passes away, the latter’s policy continues the way it is with the same premiums.

Limitations Joint Life Insurance Policy

Financial planners opine that covers for homemakers are not really necessary because the core objective of joint life insurance is to replace the life insured’s income for his/her dependents’ benefit.

  • If the surviving spouse earns well and manages all household finances, paying a higher yearly premium simply for the premium waiver benefit does not make much sense.
  • The savings is not huge. The premium for joint life insurance policies is lower than that of regular life insurance policies by just INR 700-1,000 per annum (approximately). Premiums also vary depending on the individuals’ health conditions, habits and overall lifestyle. A small difference therefore takes away flexibility and a couple stays locked into the policy for a good 15-20 years.
  • A disturbing yet practical point is the possibility of a divorce, in which case, the estranged couple’s insurance needs become separate. Therefore, the couple will have to give up the purchased joint term life plan or wait for it to lapse and buy a fresh cover, which by virtue of progressed time will carry a higher premium. If it is an endowment policy, premature liquidation will be necessary, leading to lower returns and loss of embedded life cover.

Summary

“The need for joint life plans has emerged with the emergence of ‘double income nuclear families’, wherein both the earning members contribute towards meeting household expenses and all aspects, such as lifestyle, loans etc, are planned based on this. In nuclear families, the economic impact of death or disability of any of the earning members is severe and therefore such mishaps need to be adequately covered,”

About the Author

Mr Paramesh Kumar S has a diversified work experience of 27 years. He has worked with McMillan Press as an Editor for 2 Years, 22 Years in various Capacities in leading Insurance Companies including LIC, HDFC, Reliance, Exide Life. He was heading South India for Training needs of Apps Daily, mobile App. Company, before joining Manipal.

Currently he is associated with MABFSI since November’16 as Assistant Professor with Life Insurance vertical.

 

 

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