Key takeaways
- Joint-term insurance covers both husband and wife under one policy.
- When one of the policyholders passes away, the surviving policyholder is entitled to receive the death benefit.
- The policy you choose can make quite a difference in the payout options you get through it.
- The premiums paid for the policy are tax deductible under Section 80C of the ITA.
If you are the sole jobholder of the family, getting a term insurance plan is a brilliant way to protect your family in the event of an unfortunate incident. However, if you and your spouse are in the workforce, your family’s financial stability depends on both individuals. Getting separate term insurance plans can help you prepare for the future but may not be cost-efficient. This is where the joint life policy comes into the picture.
What is Joint Term Life Insurance?
As the name suggests, joint-term insurance will cover both husband and wife under one policy. Given the increasing number of women joining the workforce, a joint-term plan will promise the financial stability of the household in case anything happens to a member of the policy. Like an individual term plan, the premium must be paid regularly for joint term coverage. In the event of an unfortunate demise of one member during the policy tenure, the other can file for the claim to get the coverage amount. However, if the policy reaches maturity, no survival benefit is associated with a joint-term insurance plan.
While the joint-term life plan may be perfectly suitable for married couples, there is no restriction on who can get the policy. Any two individuals can get the joint term insurance plan to safeguard the other’s future. For instance, a parent and their child can take a joint plan. If the parent passes away, the payout from the plan will take care of the financial safety and other massive expenditures, like education.
How Does Joint Life Policy Work?
Insurance companies provide two categories of joint life insurance, each offering a sole death benefit but varying in terms of payout circumstances.
First-to-Die Joint Life Insurance
In this type of life insurance, when one of the policyholders passes away, the surviving policyholder is entitled to receive the death benefit. This financial support can be crucial in the absence of their partner. However, no further benefits are provided once the death benefit is paid and the surviving policyholder’s life insurance coverage is terminated.
Some insurance companies might offer the option to convert the policy into an individual one with an equivalent death benefit. It is important to note that the new policy may come with higher premiums. Prior to purchasing a joint life policy, it is advisable to inquire about potential conversion and payout options.
Second-to-Die Joint Life Insurance
Also known as survivorship life insurance, second-to-die life insurance pays out the death benefit after the demise of the second surviving policyholder. This implies that neither policyholder receives the death benefit; instead, it is directed to the beneficiaries designated in the joint policy.
In the case of second-to-die life insurance, if the first policyholder passes away, the responsibility falls on the surviving policyholder to continue paying premiums to uphold the coverage.
Typically employed for estate planning purposes, second-to-die life insurance can be utilized to address estate taxes, benefiting adult children once both parents have passed away. It is not a suitable option for young couples seeking a payout for their surviving spouses.
Key Benefits of the Joint Term Insurance Plan
Joint term insurance plans are designed to cover two individuals under a single policy, offering a range of benefits that go beyond traditional term insurance
Joint-term Plans are Comparatively Cheaper
One of the most notable benefits of getting a joint-term insurance plan is the savings a married couple can get through this plan. Buying two individual policies can be quite costly compared to getting the joint term plan. Paying premiums on two separate policies will be higher than paying the premiums on a single plan. This feature can help a newly married couple increase their nest egg of savings as they start a new life together.
Replacement of Lost Income to the Beneficiary
The policy you choose can make quite a difference in the payout options you get through it. The plan offers you the flexibility to choose the claim you make. For example, you can opt for the entire amount to be paid out in lump sum to the beneficiary or the amount to be paid out in monthly instalments.
The monthly instalments the beneficiary gets through the policy will help them better plan their finances and act as a steady flow of income.
Income Tax Benefits on the premium paid and the death benefits of the joint term plan.
The premiums paid for the policy are tax deductible under Section 80C of the ITA (Income Tax Act). Apart from this, the death benefit that the beneficiaries may get is also exempt from tax under Section 10 (10D).
*The tax benefits received through a term plan will vary based on the changes in the tax laws.
Types of Joint Life Policies
If you are seeking a joint life insurance policy to provide comprehensive protection, you have options, just like with any other insurance plan. It could be an endowment plan or a simple term plan.
Here are the different types of joint life insurance policies available for policy buyers:
Joint Term Plan
A joint life policy, like a conventional term plan, requires you and your spouse to pay a premium for a set length of time in order to stay protected. During this time, you can collect the life insurance amount if one of you is involved in an unfortunate incident. Once this is completed, the combined life policy’s coverage will be terminated.
Joint Endowment Plan
The combined endowment plan offers investment as well as insurance benefits. It is only good for a certain time, generally before your retirement begins. When your coverage expires, the insurance company will pay you a lump sum of money known as an endowment. A combined endowment plan operates in the same way as a conventional endowment plan, with the exception that the endowment plan pays the insured couple after the insurance has expired.
This is true even if one of the policyholders is involved in a terrible situation. When the agreed-upon period expires, the surviving partner will receive the cover and the endowment money. Endowment plans can also receive maturity benefits.
Benefits of Joint Life Policy
Unlike individual policies, joint life insurance covers two individuals, typically spouses or partners, under a single plan. This unique approach offers a range of benefits that cater to couples’ diverse needs and goals.
Cost-EfficiencCost-Efficiencyy
One of the primary benefits of a joint life insurance policy is its cost-effectiveness. Premiums for joint policies are generally lower than the combined cost of two individual policies. This is because insurers consider the joint life policy as covering two lives with a reduced risk of both individuals passing away simultaneously. Couples can thus enjoy comprehensive coverage at a more affordable rate, making joint life insurance an attractive option for those looking to maximize their insurance budget.
Simplified Administration
Managing finances and insurance policies can be complex, especially when dealing with multiple individual policies. Joint life insurance simplifies the administrative aspect by consolidating coverage for both individuals under a single plan. This streamlined approach reduces paperwork and makes it easier for beneficiaries to navigate the claims process in the event of the policyholder’s demise. The simplicity of joint life insurance contributes to a more efficient and organized financial strategy.
Survivor Benefits
One of the key features of joint life insurance is the survivor benefit. In the event of the death of one policyholder, the surviving spouse or partner receives the death benefit. This ensures that the surviving individual is financially protected, helping them maintain their lifestyle, pay off debts, and cover ongoing expenses. The survivor benefit provides a crucial financial safety net during a difficult and emotionally challenging time.
Estate Planning Advantages
Joint life insurance can also play a significant role in estate planning. The death benefit from a joint policy can be structured to provide liquidity for estate taxes, debts, and other financial obligations. This can be particularly beneficial for individuals with substantial assets, as it helps preserve the estate’s value and ensures a smoother transfer of wealth to heirs. The ability to integrate joint life insurance into a comprehensive estate plan adds another layer of financial security for the future.
Flexibility in Coverage
Joint life insurance policies often come with flexible coverage options. Couples can choose the type and amount of coverage that best suits their needs, whether it’s term life insurance for a specific period or permanent life insurance that provides lifelong protection. This flexibility allows couples to tailor their insurance to match their unique financial goals and circumstances.
Who Should Get a Joint Life Policy?
Joint life insurance policies can be a valuable financial tool for couples and business partners seeking cost-effective and convenient coverage. However, it is crucial to carefully assess individual circumstances, financial goals, and the dynamics of the relationship before deciding on a joint life policy.
Couples with Shared Financial Responsibilities
Joint life insurance is well-suited for couples who share financial responsibilities and depend on each other’s income to meet their financial needs. This includes couples with joint mortgages, shared debts, or dependents who rely on the income of both partners.
Cost-Conscious Couples
Joint life policies are generally more affordable than purchasing separate policies for each individual. If budget constraints are a concern, a joint life policy can offer adequate coverage at a lower premium, making it an appealing option for cost-conscious couples.
Estate Planning
Couples with significant assets may use joint life insurance as part of their estate planning strategy. The death benefit from a joint life policy can help cover estate taxes, ensuring that the surviving partner can maintain their financial stability without the burden of additional financial obligations.
Similar Health and Age Profiles
Joint life policies are typically issued based on the health and age of both individuals. If both partners are in relatively good health and have similar age profiles, they may qualify for more favorable premium rates, making a joint life policy an attractive option.
Considerations Before Choosing a Joint Life Policy
Joint life insurance is a unique option that covers two individuals under a single policy, making it a popular choice for couples. Before you decide on a joint life policy, it’s crucial to understand the intricacies involved and consider various factors to ensure the chosen policy aligns with your financial goals and needs.
Assess Financial Responsibilities
Assess the extent to which you and your partner share financial responsibilities. If your financial obligations are largely independent, individual policies may be more appropriate.
Future Insurability
Consider the potential impact on insurability if one partner were to develop a health condition. Joint life policies terminate when the first partner passes away, and the surviving partner may face challenges in securing new coverage if their health status has changed.
Long-Term Financial Goals
Evaluate your long-term financial goals and whether a joint life policy aligns with those objectives. If each partner has unique financial goals or estate planning needs, separate policies may be more suitable.
Review of Policy Terms
Thoroughly review the joint life policy terms and conditions, including how the death benefit will be distributed and any limitations or restrictions that may apply.
Summing up
With an increase in the number of women entering the workforce, getting life insurance for both the husband and wife has become essential. Getting insurance coverage for both will safeguard the house’s financial stability and secure the dependents’ financial future, especially the children. This joint life insurance plan is not restricted to married couples. You can ensure your child’s future by getting the plan with them. The joint term plan can help a newlywed couple plan for their future by helping them save and also provide tax benefits.
FAQS
1
Which type of joint life policy should I get?
The choice of joint life policy depends on your specific needs and circumstances. There are two main types: first-to-die and second-to-die policies. The first-to-die policy pays out upon the death of the first insured person, while the second-to-die policy, also known as a survivorship policy, pays out when both individuals have passed away. Consider factors such as your financial goals, the needs of your beneficiaries, and your budget when selecting the type of joint life policy that best suits your situation.
2
Is it better to get a joint life policy instead of separate plans?
The decision between a joint life policy and separate plans depends on your goals and preferences. Joint life policies are often chosen by couples for their cost-effectiveness and simplicity, covering both individuals under a single policy. However, separate plans provide individual coverage, allowing for customization based on each person’s unique needs. Consider factors such as budget, coverage requirements, and individual health conditions to determine whether a joint life policy or separate plans are more suitable for you.
3
How is the death benefit payable in a joint life policy?
The death benefit in a joint life policy is typically paid out upon the death of one of the insured individuals. The payout is made to the surviving policyholder or beneficiaries, as specified in the policy. The process is straightforward, with the insurance company disbursing the agreed-upon amount to the designated recipients. Reviewing and understanding the policy terms is important to ensure that the death benefit distribution aligns with your wishes and financial plans.
4
How much tax benefit do I get with a joint life policy?
Tax benefits associated with a joint life policy may vary based on your jurisdiction and local tax laws. In many cases, the premiums paid for life insurance are not typically tax-deductible. However, the death benefit paid out to beneficiaries is often tax-free. Additionally, some regions may offer tax advantages for joint policies, encouraging couples to secure coverage together. To determine the specific tax benefits applicable to your joint life policy, it’s advisable to consult with a tax professional or financial advisor who can provide guidance based on your individual circumstances and the prevailing tax regulations.
