News - Take joint life policy for higher cover, lower costs
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22 Dec 2015A joint life policy covers two lives under the same contract. It can be in form of an endowment plan, term plan or an annuity plan, and can be taken by husband-wife, blood-relatives and even partners, provided there is proper justifiable insurable interest.
The benefits can be payable on combinations of one or more of the following events:
First death out of two lives covered (failure of joint life status)
If husband and wife are covered under this with a death benefit of say Rs 10 lakh, and one of them dies, the surviving partner would get the death benefit of Rs 10 lakh. The policy would then be exhausted. This could also be a great mortgage redemption policy, wherein the death benefit would pay off the mortgage for the survivor.
Second death out of the two lives covered (survivorship policies) or both die together
In this scenario, for example, the husband dies. The policy would not pay until the wife dies, leaving the death benefit to their beneficiary. This insurance also insures two or more people for one premium. As the policy is generally for longer tenure, it allows for a lower premium.
Also called survivorship policies, they are popular for many situations. In developed markets, couples or non-married partners who are retired and do not rely on each other for income will buy a survivorship policy to help their children with estate taxes. They are also bought in business partnerships where they are used to pay any business expenses after the last partner dies.
The chance of first event happening is much higher than the second. Hence, the expected cost of claims under former is much higher.
One can also take a joint life annuity with return of premium, under which the premium is returned after the death of both the lives.
Benefit of joint life insurance
- - Both lives covered under the same contract; ease of managing one policy than two
- - The premium under joint life is likely to be lower than buying two separate policies as it’s a single contract and administration cost would be lower
- - Among couples or business partners, both benefit from the financial security
- - Section 80C allows deduction of premiums if premium paid in the policy is greater than 10% of the sum assured ( i.e. if the SA is less than 10 times the premium).
- - For a single premium policy, a cover of 10 times the premium makes it very expensive. However, single premium joint life polices can be designed for low mortality charges and in a tax-compliant manner.
Source: dnaindia
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