Covering two lives in one life policy

Does the option of insuring two lives in a single policy sound attractive? Joint term life insurance plans offer just that, but with conditions. Benefits include ease and convenience of buying the policy and paying premiums and coverage for a non-working spouse. But the disadvantage is the cap on the sum assured for the secondary member, which could prove to be insufficient in case of a working spouse.

Features of a joint life plan

The primary feature is that they provide you with an option to extend your term insurance plan to your spouse, irrespective of the fact whether he/she is employed. Typically, it is the wife who is the non-working spouse.

Under this option, the spouse is eligible for 50% of the sum assured of the primary life insured, that is, if the husband has a sum assured of Rs 1 crore, then the wife gets a sum assured of Rs 50 lakh. Some companies offer a waiver of premium for the secondary life insured, after the death of the primary life insured.

Some companies that offer a joint life option are Bajaj Allianz Life, PNB Metlife, Aditya Birla Sun Life, Edelweiss Tokio Life and Aegon Life.

The insurer can also put a cap on the life cover amount if the spouse is a homemaker. For example, PNB Metlife Mera Term Plan has a maximum cover of only Rs 25 lakh for the spouse and Aditya Birla has a minimum requirement of Rs 60 lakh for the primary insured for the joint life option.

"The maximum combined sum assured available to both lives (husband + wife) cannot exceed the maximum sum insured available for the primary life insured (husband/wife)," said Mahavir Chopra, director - health, life and strategic initiatives, Coverfox.com.

Each of the insured lives has his/her own sum assured, which is paid to the other surviving partner. On the death of the primary life insured, the surviving partner receives the sum assured applicable for the primary life. If there is death of the secondary life before the primary life, then the sum insured applicable for the secondary life is paid. Future premiums for primary life are reduced. In case of simultaneous deaths of both lives, that is, husband and wife, the entire sum assured applicable for each life is paid to the nominees.       

Edelweiss Tokio Life Insurance launched its term plan, Zindagi Plus, two months back, with the Better Half Benefit. "It provides an opportunity to our customers to cover their spouse in an event of his/her death. The rationale of this benefit is that typically in case of death of the bread earner, the family faces an emotional and financial vacuum and is now dependent of the spouse. While the base plan provides for the death benefit on the death of the primary insured, Better Half Benefit ensures that the person on whom the family is subsequently dependent gets life cover. The benefit is available with a nominal additional premium payable by the insured from the commencement of the plan, but post the insured's death, the spouse is not required to pay any subsequent premiums," said Subhrajit Mukhopadhyay, chief and appointed actuary, Edelweiss Tokio Life Insurance.

Who should buy it

Joint life as a concept is meant to cover non-working spouses and that is where it is effective. If both spouses are working, both should apply for an independent term cover, said Santosh Agarwal, associate director and cluster head - life insurance, policybazaar.com.

"There is no other advantage of a joint life policy, other than as a good source to cover the non-working spouse. Otherwise, you cannot get an insurance policy if you don't have an income. But if both spouses are working and if the family is dependent on both incomes, then it is better to buy separate term plans as they offer better features and flexibility,'' she said.

Benefits of joint life policies

If something unfortunate happens to the husband, the life cover for wife continues without any break. Besides, if there is the waiver of premium option, the life cover for the wife becomes effectively free for the remaining policy term and relieves her of any future financial obligations.

The cost is also lower than buying two separate policies, said Anilkumar Singh, chief actuarial officer, Aditya Birla Sun Life Insurance. "Though the policy covers two lives, the premium will not be exactly double if covering one person. This is because both lives are managed in a single policy so there some saving in the expense," he said.

Disadvantages

According to Pradeep Agarwal, CEO, Meri Punji, a financial planning and investment firm, in a joint life plan, because two lives are covered, the premium is higher, which could otherwise have been used to provide higher cover to the primary insured.

"Term policy is primarily taken to cover the loss of income due to death of sole bread earner. In joint life policy, the sum assured is received on the death of the primary life insured, which serves the purpose of term insurance. The amount insured for second life goes as an inheritance for the nominee,'' he said.

The premium is recalculated after the death of the primary life insured and does appear lower, but in reality, it works out to be higher than buying a separate term life plan.

Another disadvantage is that in case of separation of husband and wife, the policy cannot be split. The only option is the termination of the plan. If the plan is terminated, both lives will have to apply afresh for another term life insurance plan, which might be costlier as the applicable premium rates might change due to an increase in age. If the spouse is a housewife, she might not even be eligible to get a standalone term insurance plan for herself, said Chopra.

GET DUAL BENEFITS

60yrs 
Age till which it is advisable to have life cover  

50% 
Cap on sum assured for spouse as compared to primary insured

Rs 50 lakh 
Limit on amount for sum assured for spouse set by most insurers