How Does A Joint Life Term Insurance Policy Work?

Today, insurance companies sell a variety of term insurance policies to cater to your unique requirements. A Single Pay Term Plan, for example, requires you to make only a single premium payment. Then, under an Increasing Term Insurance Plan, your sum assured will gradually increase up to a certain maximum limit. A Group Term Insurance Plan covers a large group of people under a single plan. And so on. 

In this article, we discuss one unique type of term insurance called Joint Life Term Insurance. Let’s understand how this plan works, its benefits, and more. Let’s dive right in!

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A Joint Life Term Insurance Plan, as the name implies, is a term insurance plan that jointly covers two people. It is also known as a Spouse Term Insurance Plan. 

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If you are buying a Joint Life Term Insurance Plan, you will be the ‘primary life assured’ and your spouse will be the ‘secondary life assured’ under the plan. The insurance company will issue the policy based on the income documents of the primary life assured in case a non-working (homemaker) spouse is added. 

The sum assured under a Joint Life Term Plan can either be shared or separate. Let’s look at how the plan works in both cases. 

1️⃣ Sum Assured Is Separate Under The Plan

If you buy a Joint Life Term Plan where the cover amount is separate for you and your spouse, then the cover amount for your spouse, i.e., the secondary life assured may be either - 

• The same as your cover amount, or
• 50% of your, i.e., the primary life assured’s cover amount, or
• 25% of your, i.e., the primary life assured’s cover amount.

If the primary life assured passes away during the policy term, their cover amount will be paid to the secondary life assured. Then, if the secondary life assured also passes away while the policy is active, the nominee will receive the secondary life assured’s cover amount. 

Let’s understand this better with the help of an example.

Raman and Isha buy a Joint Life Term Insurance Policy for a duration of 65 years. Under the plan, Raman’s cover amount is ₹2 Crores and Isha’s cover amount is  50% of Raman’s cover amount, i.e., ₹1 Crore. They have appointed their son, Rushabh as the nominee. Now, let’s say Raman passes away in the 40th policy year and Isha passes away in the 60th policy year. Let’s see how much the claim will be paid, and to whom, in both these cases. 

• When Raman passes away, Isha will receive the claim of ₹2 Crores.
• When Isha passes away, the nominee, i.e., Rushabh will receive the claim of ₹1 Crore.

2️⃣ Sum Assured Is Shared Under The Plan

If the sum assured under the Joint Life Term Insurance you are purchasing is the same for both you and your spouse, the claim will be processed on a first death basis. This means that the insurance company will pay the claim on the death of the first life assured, and thereafter the policy will expire.

For instance, Ahem and Rinkle buy a Joint Life Term Plan with a sum assured of ₹1.5 Crores and for a duration of 55 years. As per the policy T&Cs, the claim will be payable on a first death basis - and the policy will terminate once the claim is paid. In the 44th policy year, Rinkle passes away. In this case, Ahem will receive the claim of ₹1.5 Crores, and then, the policy will end.

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Here are a few benefits of buying a Joint Life Term Insurance Policy - 

👉 Low premium
The premium of a Joint Life Term Plan can be slightly lesser than the premium for two separate term insurance policies.

👉 Simple buying process
When you buy a Joint Life Term Plan, you will need to go through the buying process of just one insurance policy. So, the buying process will be easier compared to buying two separate, individual term insurance plans. 

👉 Double protection
A Joint Term Plan where the sum assured is separate for both you and your spouse offers double financial protection. You will receive the claim if your spouse passes away during the policy term, and vice-versa. And in case both you and your spouse pass away while the policy is active, your nominee will receive the claim amount. 

👉 Convenient
If both you and your spouse are insured under the same plan, you will have to keep track of a single policy. You will have to pay a premium for only one policy and hence, the policy will be easy to maintain. 

👉 Waiver/reduction in premiums
Under some Joint Life Term Plans where the sum assured is separate, the insurer may proportionately reduce or completely waive the remaining premiums payable under the policy in case of the unfortunate death of one of the spouses. This minimises the financial burden of paying premiums on the surviving life assured.

👉 Dual tax advantages
A Joint Life Term Plan also allows you to avail tax advantages under the Income Tax Act of India, 1961. You can claim tax deductions on the premiums you pay every year under the plan under Section 80C. And, the term insurance claim paid by the insurance company will be entirely exempt from tax as per Section 10(10D).

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Here are a few points of difference between buying a Joint Term Insurance Policy and two separate Term Insurance Plans. 

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Here’s a quick premium comparison of buying a Joint Life Term Plan and buying two individual term insurance policies -

The premiums in the table are calculated on October 14, 2022. The following are the considerations taken when calculating the premiums - 

• For Individual Term Plans: 
  • Premium for ₹1 Crore cover amount, policy duration 30 years, regular pay, 30-year-old non-smoker male: ₹12,008
  • Premium for ₹50 Lakhs cover amount, policy duration 30 years, regular pay, 30-year-old non-smoker, working female: ₹5976
• For Joint Life Term Plan: 
  • Primary life assured: 30-year-old non-smoker male cover amount ₹1 Crore
  • Secondary life assured: 30-year-old non-smoker, working female, cover amount ₹50 Lakhs
  • Policy duration: 30 years
  • Premium payment model: Regular pay

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The premiums in the table are calculated on October 14, 2022. The following are the considerations taken when calculating the premiums:

• Primary life assured: 30-year-old non-smoker male
• Secondary life assured: 30-year-old non-smoker, working female
• Primary life assured’s cover amount: ₹1 Crore
• Secondary life assured’s cover amount: ₹50 Lakhs
• Policy duration: 30 years
• Premium payment model: Regular pay

So, that is all about how a Joint Life Term Insurance Policy works. If you have any further questions, you can post them on the Beshak Insurance Forum, and get answers from vetted insurance experts, for free!