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, 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,” says K S Gopalakrishnan, MD & CEO, AEGON Religare Life Insurance.
Thus, giving due recognition to the fact that the life of your spouse is equally important, joint life insurance offers payout on death of either one of the two insured as well as, in some cases, regular income to pre-specified surviving family members.
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 ends thereafter. 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.
Some joint life plans also provide the option of adding a critical illness insurance rider to the base policy. Besides, the premiums paid and benefits received under these policies are eligible for tax benefits under Section 80C and 10(10D), respectively, of the Income Tax Act, 1961.
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 uncorrectable medical condition) benefit.
Need for joint life cover
“The need for such 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. Consequently, 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,” says Rituraj Bhattacharya, head of product development, Bajaj Allianz Life Insurance.
According to experts, joint life insurance is also beneficial for young couples, particularly those with small kids or outstanding loans, who are starting their family life. That is because the payment received upon the death of either of the partners will be very significant in comparison to the amount invested in the policy. It is worth covering the life of a non-working spouse too because if he/she were to die, taking care of the children and other family members could be a significant burden.
Joint life term insurance versus separate term plans
In order to decide whether you need a joint life term policy or separate term policies for yourself and your spouse, consider the pros and cons of both types of policies and also examine which policy or policies meet your requirements. Since the cost of such policies as well as their features vary from one insurance company to the other, you should try to choose the optimal plan i.e. the best plan which is within your budget.
Following are some points that need to be kept in mind:
> A joint life cover will insure both the spouses on the same terms and conditions. However, if separate policies are taken, the policy terms, conditions and cost can be chosen by each spouse as per his/her individual requirements.
> A joint life policy usually assures only one death pay-out (barring those policies under which a death claim is paid on the death of each insured life). So, in case a single death pay-out policy has been taken and if the couple dies in a car accident, the beneficiary will only get a single death-related payment. If, however, the same couple had taken out individual policies, then there would be two separate death-related payouts. This is an important difference as the impact – emotional and financial — of losing both parents on the children would be more than double that of losing one parent.
> After paying-out on the first death, single pay-out plans leave the surviving policy holder without any life cover. Buying life cover later in life will cost the surviving spouse more because of the age factor and also because the surviving member may have developed some health-related problems by then.
> In case of a joint policy, if a couple decides to separate/divorce, you can’t divide-up the policy. “That means if one ex-partner decides not to pay his/her share of the premium, the policy will probably cease unless the other partner takes on the burden of paying the full amount. Having separate policies avoids this sort of issue,” says Gopalakrishnan.
One could try to avoid this problem by checking with the insurance company whether they offer a joint life policy with optional riders/clauses that provide for the right to split the policy in case of a separation or divorce.
> Buying a joint life policy would usually (but not in all cases) be cheaper than buying two separate individual life insurance policies for the same couple for the same sum assured. For instance, in case of Bajaj Allianz iSecure policy, for a sum assured of Rs 1 crore for a 30-year policy term, a 30-year-old non-smoker male will have to pay a starting premium of Rs 11,960 (excluding taxes) for securing his life, while the premium for the sum assured of Rs 1 crore for a 27-year-old female would be Rs 9,750 (excluding taxes). Thus, in this case, the total premium for securing the lives of both husband and wife individually for equal sum assured of Rs 1 crore each, would be Rs 21,710. On the other hand, if the same couple wants to go for a joint life cover of Rs 1 crore sum assured, the annual premium would be Rs 20,069 (excluding taxes), entailing a saving of Rs 1,641.
Therefore, if a couple’s budget is tight and buying two separate individual policies is economically difficult, then a joint life plan may help. It would offer wider coverage as compared to a single individual policy covering only one of the two partners.
Although “such a plan will not necessarily offer a huge joint-life discount since the insurance is offered individually on both the lives covered, but the convenience of covering both the insured at one go, simple documentation and the ease of managing the policy are some of the things that make the joint life policies a lucrative offering,” says Bhattacharya.
> One also has to evaluate the benefit of joint life covers and single term policies on a case-to-case basis. For example, in case of AEGON Religare’s iSpouse plan, if a 30-year-old man opts for a joint life policy of Rs 75 lakh for 30 years, where his wife is 27-year old, the premium works out to be Rs 20,400, excluding taxes. However, for the same cover under AEGON Religare’s iTerm plan, which is a single term plan, the premium works out to be Rs 10,875 (Rs 5925 for husband and Rs 4950 for wife). By paying this premium, they will be able to get separate individual covers of Rs 75 lakh each, i.e. total Rs 1.50 crore).
At first glance, the premium of the joint life cover appears to be almost double the total of the separate single life policy premiums. However, under the iSpouse plan, the total benefit payment is more than double the sum assured, i.e. Rs 75 lakh (which will be paid on death of either of the spouse) and about Rs 79 lakh (which will be paid as equal monthly installments over a period of 60 months). The iSpouse plan also has an inbuilt accidental death benefit which gives additional 50% of the Rs 75 lakh sum assured in case the death were to happen due to an accident. In this scenario the total death benefit will be equal to Rs 1.9 crore.
The advantage of this policy is that one will be able to get this much benefit on death of either of the spouse, while in case of iTerm plan, the benefit of Rs 1.50 crore (Rs 75 lakh + Rs 75 lakh) will accrue only in the unfortunate case of both husband and wife dying. Alternatively, in the case of individual policies one spouse can buy a similar high sum assured by paying higher premium but then only that spouse will be covered not both. In addition to this, the iSpouse plan allows the lower-earning spouse to enjoy equal protection as is offered to the higher-earning spouse.
Another interesting fact that emerges from the comparison of AEGON Religare’s iSpouse and iTerm plans is that the joint life cover becomes comparatively cheaper vis-à-vis the term combination, with the rise in the age of couples, specially so if they are above 40 years. This means that if you are planning to buy life insurance in your middle years, then perhaps the joint life policy offers a much better value proposition.
However, you also need to keep in mind that “while in some joint life policies, the age of both the lives (apart from other factors like an individual’s gender and lifestyle) is considered for premium determination, there are others where the premium is based on the age of the older member (usually husband) because his life is considered more at risk,” says Pavanjit Singh Dhingra, CEO, Prudent Insurance Brokers.
So, in case where the age differential between husband and wife is not much (for instance, husband’s age is 40 and wife’s 38) and both are in the same state of health, any good plan joint plan may be considered. However, in case where the age differential between husband and wife is large (for instance, husband’s age is 40 and wife’s 35 or 30), one should look for policies where the age of both the lives is considered for premium determination, as you will be able to save on the premium. Alternatively you may also opt for separate policies.
A regular question when couples take out life insurance is whether the insurance should be taken out on a single or joint life basis?
What is single life insurance?
A ‘single’ life insurance policy covers one person only, and pays out the chosen amount of cover if that person dies during the length of the policy.
What is joint life insurance?
A ‘joint’ life insurance policy cover two lives, usually on a ‘first death’ basis. This means the chosen amount of cover is paid out if the first person dies, during the length of the policy, after which the policy would end.
Remember, a joint life insurance policy only pays out once and would leave the surviving person without any life insurance. If there are two single life policies, if the first one dies, the surviving person still has their own cover.
Both the single and the joint life insurance policies have their own pro’s and con’s, so if you’re considering the options think about your own needs and budget. Here are a few factors you should consider:
Budget — one joint insurance life policy could be more affordable than two single life insurance policies (this would depend on personal circumstances).
Cover — do you both have exactly the same life insurance need? Would one or two plans be the most appropriate?
if a relationship breaks down, it’s possible that an insurance provider would not be able to divide a joint life policy into two single policies.
if you claimed against a joint life policy, the surviving person would be left without life cover. Applying for life insurance later in life can be expensive because premiums increase with age.
So, before you make the decision between a single or joint life insurance policy, make sure you think about the implications and choose the option that suits you the best.
int First To Die Life Insurance
Joint first to die life insurance is insurance where two individuals are covered with death benefit paid on the first death.
This is sometimes considered by couples with the intention that such coverage is less expensive that two individual coverages. In reality, this is not normally the case. In fact, I specifically recommend two individual coverages over a joint first to die policy.
Aside, if you would like a quote for two individual coverages under one policy, please visit our spousal life insurance page and request a custom quote)
Fallacies about joint to die life insurance:
It’s less expensive that two individual coverages. In reality, the premiums on most joint first to die plans are less than 5% different than two individual coverages. The cost savings are either non-existent, or minimal.
Joint first to die pays only on the first death. This would be one reason why one might think it’s less expensive. However many joint first to die policies will actually pay out two death benefits if both insureds die at the same time.
Joint first to die pays only at the first death, so the second person could be left with no life insurance. Today however, many first to die joint policies offer an option at the first death for the remaining insured to purchase new individual coverage.
So while we may initially think that joint first to die life insurance is less expensive that two individual coverages as the result of different coverage, in today’s marketplace it provides very similiar coverage at similiar premiums.
So what is the drawback to joint first to die life insurance?
Drawbacks to Joint First To Die
There are two serious drawbacks to joint first to die insurance compared to two individual coverages. In many cases, coverage and premiums will be similiar. It’s in the worst case scenarios where we run into some serious problems with joint first to die compared to individual coverages. And if you end up in one of these worst case scenarios, a dollor or two of savings will not have been worth it.
Inability to split policies. Should you ever need to seperate the coverages with a joint first to die policy, doing so with some companies can be exceptionally difficult or actually impossible. But why would you ever need to seperate your policies? Let me provide two examples. First, divorce is one clear reason why. Now none of us are planning for this, but clearly many Canadians do end up divorced. For those that are, seperating their insurance polices can become paramount. Secondly should you want new coverage in the future but one of the insureds has become uninsurable, you’re pretty much stuck with the old policy. If you can’t seperate the coverage and carve off the uninsurable person, then the healthy person is stick continuing on with the old policy.
Age related benefits. With joint first to die insurance companies blend both parties age and sex and come up with what’s known as an Equivalent Single Age (ESA). Then they create a policy based on a Male, Nonsmokerof that equivalent age. Age based policy benefits are then based on this equivalent age. On joint first to die policies that ESA will be older than either of the actual insureds. This causes two problems that I’ll illustrate by example. Lets take two people aged 30 and assume that the equivalent age is 40. If conversion (an important policy benefit in term insurance) drops off at age 65, then on individual policies these two individuals would have conversion for 35 years – to their age 65. For the joint first to die coverage they would lose the conversion privilege 10 years earlier because the ESA is 40, not 30. Secondly should the two insureds decide to convert their policy say at age 50, with individual coverages they would be seeing rates for a 50 year old. With a joint policy, they would be converting at age 60 (because again the ESA is 10 years older). Those 10 years can make a huge difference in premium – a general rule of thumb is that premiums double between ages 50 and 60.
So in summary, the coverage benefits between a joint first to die benefits are actually much closer to individual coverages than you might expect. The premium difference is either nonexistent or minimal, which again is not what many people initially expect (there’s little or no costs savings). The serious drawback to joint first to die is that the policy is based on someone older than the insured so any age related benefits are not as good as two individual coverages. As a result, I recommend two individual coverages rather than joint first to die when the motivation is costs savings.