Term Insurance

Joint term insurance plan or two separate term plans which option is better

Nov 30, 2021

Introduction

Whether you are single or married, purchasing a life insurance plan is necessary to protect yourself and your family from the unfortunate life events. It ensures that your family has financial support in every circumstance. In recent years, joint term insurance plans have increased in popularity among married couples. The absence of any one of the partners can have adverse effects on the family, regardless of whether the spouse earns or not. Therefore, joint term plans offer coverage for both the individuals.

What is a Joint Term Plan?

A joint term insurance plan covers two individuals under a single policy and is mainly for couples. It is a comprehensive plan and offers multiple benefits for both partners. It offers a payout on the death of either of the two insured and often offers a regular income to the surviving partner. In case one partner dies, the other partner can claim the life cover amount. It ensures that the future of your family is secure, even if either of you are not there. 

Tracking and making payment of the premiums is easy because one policy covers both. The sum assured in a joint plan is calculated on the basis of the primary policyholder’s age, medical condition, income and lifestyle. The age and medical conditions of the secondary policyholder is also taken into account.

How does the Joint Term Plan Work?

• A joint term life insurance plan usually works on the principle of first death basis. According to this principle, if any one of the partners dies during the policy’s tenure, the surviving partner receives a lump sum pay-out in the form of a death benefit.

• If both the partners die simultaneously, the person(s) nominated by them in the policy, or the legal heir, shall receive the total sum assured as death benefits.

• Most joint term life insurance plans available in the market provide a cover of up to 50% of the sum assured to the spouse on the demise of the primary insured.

For example, let us assume that you purchase a joint term insurance plan with your spouse, who will be the insured partner. If you have a death benefit amount worth INR 20 lakhs, your spouse will have a death benefit of INR 10 lakhs (50% of your death benefit.) 

If you die, your spouse will receive the full death benefit amount of INR 20 lakhs. Alternatively, in the event of your spouse’s death, you will receive a sum assured amount of Rs. 10 lakhs as compensation. If both of you pass away simultaneously, your nominee or your legal heir shall receive a total of Rs. 30 lakhs.

 

Sum Assured for Primary Policy HolderSum Assured for SpousePayout in the event of the death of the Primary Policy HolderPayout in the event of the death of the SpousePayout to the nominee in the event of death of both policyholders
20 Lakhs10 Lakhs20 Lakhs10 Lakhs30 Lakhs

 

Things to Keep in Mind While Selecting A Joint Term Plan

The choice between joint term plans and two single term plans must be made after considering the benefits and risks associated with both. While some people may find a joint plan more suitable, others may like to go for an individual term plan that can meet their specific requirements.

  1. Taking two separate insurance policies can be costly in the long term. A joint plan is more economical as partners do not need to pay two different premiums. Also, a joint plan may lead to additional tax savings. 
  2. A key advantage of a joint term plan is the waiver of premiums if one of the partners dies. The surviving partner does not have to pay premiums in the future and the coverage continues. The surviving spouse gets the assured lump sum immediately. Couples on a tight budget can consider a joint plan that best meets their requirements.
  3. If a single payout policy is chosen, the policy terminates when one of the partners dies. The surviving partner and the rest of the family is left with no more coverage. They may need an individual term plan then, and at later stages in life, the premiums for individual policies may be significantly high. For example, if a 30-year old non-smoker male buys an INR 1 crore individual term insurance policy, he will have to pay the premium of around INR 9,000- INR 10,000. However, a 50-year old non-smoker male will have to pay over INR 20,00 for the same coverage.
  4. If a double payout policy is chosen, payouts are made twice, once at the death of each of the insured partners. However, premiums will be higher for a double payout policy. In such a case two individual term plans may also be considered, as there would be little difference between the two.
  5. If both partners die in an accident, a single death related payment will be made to the legal heir or the nominee. 
  6. If the couple gets divorced and the one of them stops paying the premium, the other policyholder has to pay the entire premium. Otherwise, the joint policy becomes void and is terminated.
  7. The sum assured is decided according to the age, lifestyle, health condition and income of the primary policyholder. Even if the secondary policyholder is not working, the sum assured depends completely on the profile of the primary policyholder.

     

Joint Term Insurance vs Two Separate Term Plans

Key Points

Joint Term Plan

Two Separate Term Plans

Who is covered?

Both partners are covered.

Only one person, that is, the policyholder is covered.

Choice of sum assured

Sum assured is combined for both. The term of coverage is the same, and the sum assured depends on the income and risk profile of the primary policyholder.

The sum assured is decided according to the policyholder’s income, health conditions, age and lifestyle.

What if one of the partners die?

The other receives the full death benefit amount which the deceased partner was worth, according to the policy. If it is a single payout policy, it gets terminated.

If the policyholder dies, the family gets the full death benefit amount. The other partner continues to have his own individual policy.

What if both partners die?

The legal heir, or the person nominated by the deceased couple gets the full assured amount of both the partners. 

The rest of the family, or the nominees, get the full death benefit from both the policies of both the partners. 

What happens in case of Divorce?

The policy may be split if the insurer allows it. Otherwise, it would be declared void and terminated.

The individual separate term policies continue for the people insured, unless the name of the nominee is changed according to requirement.

Who will it be suitable for?

Younger couples with low budget, who cannot pay higher premiums, couples with similar lifestyles (eg. Both are non-smokers), people who have taken huge loans.


 

Double earning nuclear families, in which both the partners are capable of paying their own premiums individually. 

Tax Benefits

Tax benefits of up to INR 1.5 lakhs can be claimed on premiums paid under Section 80C of the Income Tax Act and death benefits received under such a plan are also eligible for tax deductions under Section 10 (10D) of the Income Tax Act. Also, tax benefits of up to INR 25,000 under Section 80D of the Income Tax Act can be availed on premiums paid for health-related riders 

As per 80(C) of the Indian Income Tax Act, premiums up to INR 1.5 lakhs are exempted from income tax. Also, under Section 80D of the Income Tax Act,the tax benefit of up to INR 25,000 on premiums paid for health-related riders are exempted. Moreover, death/maturity benefits are also tax-free under Section 10 (10D) of the Income Tax Act

Key takeaways

A joint plan is more suitable for those who want a combined financial planning. Also, it is quite affordable, as the premiums are lower than two individual policies. Young couples with small kids, who do not earn much yet, or households in which only one partner earns can go for joint term insurance. However, it must be kept in mind that the death of one partner would terminate the policy if it is not a double payout policy. A double payout policy costs more, but can be more suited to your requirement. In every case, joint insurance policies help to shield you and your loved ones in case of unforeseen deaths of you or your spouse, and provide financial security.

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