What Are Joint Term Life Insurance Plans?
As times change, so may the way families function. These days, it may be common to see both spouses being working professionals. As such, each one may contribute substantially to running the household and handling the finances. While this may be a positive step, it may also mean that a financial backup may be needed not just against the demise of one but both the spouses.
The absence of either spouse may not only lead to an emotional loss but may also a dent in the household chores as well as expenses. This is where a joint term insurance plan may help. It is a type of term insurance policy providing coverage to two people under one insurance contract. Rather than buying two separate insurance policies for you and your spouse, the coverage of a joint life insurance policy may prove to be sufficient for both at once. Let’s take a deeper dive into the workings of a joint life policy.
How Does a Joint Term Insurance Plan Work?
A joint term insurance plan can provide life insurance coverage to two people under a single contract. In most cases, there may be only one sum assured, which may be divided between the two insured persons equally or by a specific percentage. Sometimes, the primary insured may have a higher sum assured amount designated to them.
A joint term life insurance policy usually works on the principle of first death basis. Thus, if either spouse passes away first, the sum assured allocated to them may be paid to the other spouse. On the demise of the other spouse, the remaining sum assured may be paid to the nominees of the plan. If both spouses pass away simultaneously, the entire sum assured may be paid to the nominees.
Let’s understand this through an example:
Aditi and her husband Kabir, both working professionals in their 30s, bought a joint term life insurance policy with a total sum assured of Rs. 70 lakhs. Aditi, the primary life insured under the plan, had a sum assured of Rs. 40 lakhs while Kabir, the secondary life insured, had Rs. 30 lakhs. They nominated their son, Rudra, as the nominee of the policy.
Years later, due to an unfortunate event, Aditi passed away in an accident. Kabir raised a claim and received Rs. 40 lakhs as financial compensation. A few years later, Kabir passed away, too. Their son, Rudra, who was now a legal adult, received Rs. 30 lakhs from the joint term insurance plan.
Thus, the joint term plan was able to help the remaining family members deal with the financial impact of the passing away of an earning member.
Do note that the workings of joint term insurance plans may differ based on the type of policy you select and its wordings.
Are Joint Term Insurance Plans Only for Spouses?
One may assume that joint term life insurance may only be for a husband and wife. However, this may not be true for all cases. Joint term plans may not be restricted to married couples only.
A joint term insurance contract may cover two business partners, even though they may not be related as family. A parent may also buy a joint term insurance policy covering them and their child. However, the insurer may have some criteria related to what kinds of pairs may be covered under their joint term plans. It may help to go through the criteria and get a clearer understanding of the same before you go ahead.
What Are the Benefits of Joint Term Insurance Plans?
When you buy a joint term insurance plan for yourself and your spouse, you may enjoy some of the following benefits:
When you buy two separate policies to cover yourself and another life, you may have to pay premiums for both the policies. If you purchase a joint term insurance plan for yourself and your loved one or any other individual allowed under the plan, there will only be a single premium to pay.
The single premium may make it easier and more affordable to receive dual life insurance coverage at an affordable price.
• Tax benefits
The premium you pay on your joint term life plan may be eligible for tax benefits under Section 80C of the Income Tax Act, 1961, subject to provisions stated therein. The deduction you may be able to claim under this section is up to Rs. 1.5 lakhs. In addition to this, the death benefit pay-out received by joint life assured, or the nominee of the plan, will be eligible for tax exemption under Section 10 (10D) of the Act subject to satisfaction of conditions mentioned therein.
Since the death benefit payout may be made twice in a joint term insurance plan, you may want to consult a tax expert on its tax implications.
Regardless, certain terms and conditions may have to be met to enjoy these joint term insurance tax benefits. For instance, if the joint life plan is purchased after 1st April 2012, the premium may have to be not more than 10% of the death sum assured. If the plan is issued before the given date, the premium may have to be not more than 20% of the death sum assured. Moreover, some tax benefits may only be applicable if the taxpayer has opted for the old tax regime. Tax benefits are subject to changes in tax laws and terms and conditions.
Note: With effect from 1 April 2023, income from certain life insurance policies with an aggregate annual premium of more than Rs. 5 lakhs are taxable in the hands of recipient.
• Peace of mind for both spouses
If you wish to provide yourself and your spouse or any other individual, allowed under the plan, with peace of mind, a joint term life insurance plan may be a suitable option. With life insurance coverage for both, each of you may be reassured that if any unfortunate incident were to befall them, the financial effects of the same would be relieved by the money from the insurance policy.
Additionally, you may also want to opt for certain benefits offered under such plans, such as monthly pay-outs after the life insured’s demise. Features such as these may further help your loved ones in your absence. Your spouse may be able to continue their life with financial support and your child may not have to suffer from financial hardships. Similarly, in case of business partners, it may help them pay off the business liabilities, if any and ensure smooth functioning of the day to day business expenses.
To sum it up, one may say that the benefits of a joint term insurance plan are many. It may offer coverage for two under a single contract, thus helps in relieving the worries of families where each one’s financial contribution is important. Also, remember that whether it may be a joint term plan for a husband and wife or a parent and a child, reading the terms and conditions of the plan may be quite important. The wordings may provide you with vital details about the policy.
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