Deciphering- Joint Term Insurance vs Two Separate Term Plans


Insurance can be tricky to understand. But that can’t be an excuse to ignore it, for insurance can be a life saviour – not your life, your loved ones’ lives! In this blog post, we decode a relatively new concept of joint term insurance and help you better understand the nitty-gritties of it. 

Let’s clear the basics first.

What is term insurance?

Term insurance provides financial protection to your family against a fixed premium paid for a specified term. It is a pure risk cover form of life insurance. Pure risk cover implies that the insurance company doesn’t have to splurge out the sum assured if the insured survives the policy term. Because you let go maturity benefits, term insurance policies usually demand less premium than other forms of insurance. And once the premium amount is set, it remains the same. This also makes it an effective hedge against rising inflation.

What is joint term insurance?

Joint term insurance is a type of term insurance policy that covers two people but pays out once. The pay-out can be made upon the death of -

  • the first partner (first-to-die life insurance) – the pay-out is made to the surviving partner, allowing the surviving partner to maintain his/ her lifestyle, or
  • both the partners (second-to-die life insurance) – the pay-out benefit goes to the couple’s beneficiaries who can be the couple’s children, relatives or anyone else. This joint term insurance can prove to be a great estate planning instrument.

The sum assured may be received as -

  • regular payments for a fixed term, or-
  • a lump-sum payment, ending the policy there, or
  • as a combination of lump-sum and regular payments

Given the above, why should couples choose joint term insurance over two separate term plans?

1. Economically viable:

Term insurance is generally more economical than other forms of insurance. Joint term insurance can prove to be even more affordable. With separate covers, insurance companies face a likely pay-out of say INR 50,00,000 as against a joint term insurance where the pay-out will be half of INR 50,00,000. Hence, the coverage offered under joint term insurance is less expensive vis-à-vis 2 separate insurance covers.
2. Tax savings (that too twice)-
Section 80C of the Income-Tax Act (the Act), 1961 allow premium paid to be deducted from total income thereby bringing down your taxable income and taxes thereon. It is worth keeping in mind that only the partner who actually pays the premium will be allowed a deduction under these sections.The pay-out received upon the death of the insured is exempt under section 10(10D) of the Act, i.e., the pay-out is not even considered as income in the first place.

3. Minimal hassle-
It goes without saying that a single policy can be managed more easily than two separate policies. There is less paperwork involved, any one of the partners can pay the premium on behalf of the two of them, and both partners can access the policy account and keep a track of it jointly/ severally. Isn’t it great for planning your finances as a team?
4. Great for young couples-
Death is inevitable. But young people have age by their side. The odds of them passing away during the insurance term are stacked against them. Which is why buying two insurance policies, when they can buy just one but enjoy the benefits of two, makes little sense. Young couples can pay less premium for a large sum assured in case of a joint term insurance policy.
5. Riders-
A rider is an insurance policy provision that amends the terms of a basic insurance policy to provide additional coverage. In other words, riders help create customised insurance policies. Joint term insurance plans are available with riders which help couples to tweak their policies to suit their needs.
6. Estate planning-
Second-to-die life insurance can help in the estate planning needs of couples. However, this arrangement is best suited with a whole life insurance policy. This is because if the insurance term ends before the passing away of the second holder, the policy lapses and the beneficiaries receive nothing.
7. Standard of living-
By receiving the pay-out upon the death of a partner, joint term policies can help the surviving partner maintain his/ her lifestyle.

Insurance policies go a long way in keeping you and family financially secure. It is the first and strongest shield against any uncertainty that life throws at you. Understand your money needs, check with your agent and take the right step towards your and your family’s well-being.