Joint Term Insurance vs. Two Separate Term Plans

What is Term Insurance?

 

A term insurance plan is essentially a type of a life insurance policy that provides the life assured with a pure life cover in exchange for payment of premium, which is charged by the insurance company. As the name makes it clear, the coverage provided by a term insurance plan is valid only for a specified period of time, which is known as the policy term. If the life assured passes away during the policy’s term, death benefits are paid to the nominee or the legal heirs of the insured in the form of a lump-sum amount.

 

While a regular term insurance plan insures only one life, some policies can be purchased for two people jointly. Let us look at what these joint plans are all about.

 

What is Joint Term Insurance?

 

A joint term insurance plan is a term policy that provides a life cover to you - the life assured - as well as your spouse. This joint cover is provided under a single contract, and just like in the case of a regular term insurance plan, you will need to pay your premiums regularly to the insurer in order to avail the benefits of a life cover. Also, a joint term insurance plan offers similar term insurance benefits as a regular term insurance policy.

 

Therefore, joint plans provide death benefits, but if both the life insureds survive until the expiry of the policy, you and your spouse cease to be covered by the term insurance cover. However, on the other hand, if either you or your spouse do not survive the policy’s term, the insurer will pay out death benefits as per the terms and conditions of the joint life term plan.

 

Although a joint term insurance policy is generally more popular among married couples, it is not restricted to married buyers alone. Several other categories of people, like business partners, for instance, can also purchase a joint insurance plan.

 

That is the basic premise of a joint term insurance plan. Let us now see how it works, so you can make a more informed decision about choosing between a joint term plan and two separate term plans.

 

Features/Benefits of Joint Life Term Insurance Plans

 

Buying a Joint Life Term Insurance plan can be beneficial for you. Let us give you some of the reasons why:

 

• Claim Payout Options

  
  

  The first major benefit is the claim payout options, as you can choose how the claim will be paid out. Some term plans give the full sum assured to the surviving partner when one policyholder passes away, while other plans may pay out after each partner’s death.

  
  

• Easier to Maintain

  
  

  Having a joint policy means no juggling between two plans; you have to manage the premium payments for only one plan, which can be less stressful.

  
  

• Tax Benefits

  
  

  You also get tax deductions with joint term plans. Such plans are eligible for tax deductions under Section 80C in case of old tax regime, and any claim received is tax-free under Section 10(10D) of the Income Tax Act, 1961, subject to certain conditions. This way, you can save a lot of money on insurance plans.

  
  

• Extra Benefits

  
  

  You can also access additional features in some joint life insurance plans. For instance, the surviving partner may receive a regular income after the policyholder’s demise. In cases where optional riders are chosen, such as an accidental death benefit rider, there may also be an additional payout if the death occurs due to an accident.

   

  
  

• Riders Available

  
  

  With joint plans, you can also boost your plans with options such as riders like accidental death cover, critical illness or terminal illness benefits, etc. This way, you can get a wider range of protection at a low cost.

  
  

 

How Joint Term Insurance Works?

 

A joint term policy works on the principle of first death basis. This means that between the two people insured jointly under the policy, if any one passes away during the policy’s tenure, then the insurance company pays out a lump sum benefit to the surviving life assured.

 

If, however, the unfortunate event of simultaneous deaths of both the insured members comes to pass, then the insurance company pays the death benefits to the nominees or the legal heirs of the insured.

 

Advantages of Joint Term Insurance

 

Joint Term Insurance plans come with several unique benefits that make them a smart choice for many couples. Here are some of the main advantages to keep in mind:

 

• Money-saving on premiums

  
  

  Joint Term Insurance plans are affordable. With a single plan covering both partners, you get cost-effective life cover without compromising on protection.

  
  

• Various payout options

  
  

  These plans offer flexible payout choices, like full sum assured on the first death or partial payouts for both individuals with insurance. You can select what suits your family’s financial needs the best.

  
  

• Tax Benefits

  
  

  Premiums paid under joint Term Insurance qualify for tax deductions under Section 80C, in case of old tax regime. Additionally, any death benefits received are tax-free under Section 10(10D) of the Income Tax Act, 1961 subject to certain conditions.

  
  

• Availability of riders

  
  

  Joint term plans like other life insurance plans often come with optional riders like accidental death, critical illness, or terminal illness cover, offering enhanced protection beyond the basic plan.

  
  

• Maintenance is easy

  
  

  With one plan for both, managing premiums and policy updates becomes simple.

  
  

  Disadvantages of Joint Term Insurance

  
  

  While joint Term Insurance plans offer convenience and savings, they may not suit every couple’s financial goals. Here are some of the common drawbacks to consider:

  
  

• Only one death payout

  
  

  In most joint Term Insurance plans, the policy ends after the first life assured passes away. This means the surviving partner does not get continued coverage unless they buy a new policy, which may be costlier due to age or health conditions.

  
  

• Conversion into Single Term Insurance

  
  

  Once the joint policy ends after the first claim, converting it into an individual term plan can be tricky. Not all insurers offer this option, and even if they do, the new plan might come at a higher premium or require fresh medical checks.

  
  

 

Payout Options Under Joint Life Term Insurance Plans

 

Joint Life Term Insurance plans offer various payout options to cater to the diverse needs of policyholders. Here are the common payout structures:

 

1. First Death Payout: Upon the death of one individual with insurance, the entire sum assured is paid to the surviving partner, and the policy terminates.
2. Continued Coverage After First Death: After the first death, the sum assured is paid to the surviving partner, and the policy continues to provide coverage for the remaining term or until the death of the surviving partner. Future premiums may or may not be waived, depending on the policy terms.
3. Combined Lump Sum and Regular Income: Some policies offer a combination of a lump sum payment and regular income to the surviving partner after the first death, providing immediate financial support and ongoing income for a specified period.

 

These payout options provide flexibility and can be chosen based on the financial planning needs of the couple.

 

Joint Term Plans Versus Individual Term Plans

 

Here is a detailed table to compare Joint vs Single Term Insurance plans in India:

 

Joint Term Insurance or Two Separate Term Plans: Which One to Choose?

 

The choice between these two options depends on many factors, like your needs, your spouse’s requirements and your ages, among other things.

 

A joint term insurance plan is suitable for you in conditions like -

 

• You and your spouse are both middle-aged, in which case, the premiums for two separate plans may be a bit higher
• If you and your spouse have very similar lifestyles, like both of you being non-smokers or smokers
• If you or your spouse is a homemaker or earns a lower income than the other

 

However, this may not be true always. One needs to go through the detail of the product carefully and take a decision.

 

Two separate plans would be suitable for you and your partner if -

 

• You are both young, since the premiums would be lower and more affordable
• You are both working and have similar annual incomes

 

Conclusion

 

Therefore, now that you have a good idea of what joint term plans are and what the term insurance benefits associated with these plans are, you can make a more informed decision about which kind of strategy to choose for you and your spouse. The end goal of all term insurance is to protect the surviving family members, so it’s best to keep that in mind while making a choice.

 

FAQs

 

1. Should I get joint or single life insurance?

   
   

   It depends on your financial and future obligations. If you and your spouse share a commitment to a home loan or children, joint term insurance could be a cost-effective and manageable option. If you desire custom coverage and flexibility, individual plans may be the right choice. Choose what best fits your life stage and objectives.

   
   

2. Should husband and wife both have Term Insurance?

   
   

   Yes, it’s a smart idea. Both spouses contribute in some way, be it financially or by managing the home. Having separate term plans ensures both are protected. In case something happens to one, the other still has coverage. It adds a stronger layer of financial security for your family.

   
   

3. What are the benefits of a Joint Life Insurance policy?

   
   

   A Joint Life Insurance policy provides insurance coverage for both partners under a single policy. It can be a cost-effective option since you are only paying for one plan. In addition to the savings, it is also easy to make premium payments and have an active policy to manage. On the death of the first policyholder, the amount assured or regular income is typically paid to the spouse as outlined in the policy.

   
   

4. Is joint life policy debit or credit?

   
   

   A Joint Life Insurance policy is not a debit or a credit like a bank account. Instead, it's something valuable that you own. It's called a financial asset because it gives money protection and can help in the future. So, when you track your money, you can put it under "things you own" or assets.