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News & Views

Monday, Aug 24, 2015

Should couples buy joint life insurance?

[Source : The Economic Times]

SBI Life, PNB MetLife and Aegon Religare have recently launched products which cover a couple under a single policy. While SBI Life's offering is an endowment plan, the other two insurers are offering this facility as part of online term policies.

Spouse covers are not novel. LIC and Bajaj Allianz Life Insurance have had such products in their baskets in the past. However, the flurry of joint life cover launches warrants an evaluation of their utility value. Do they really come with any extra benefits? Can the proposition be suitable for all couples?

Why joint cover?

When the same requirements can be fulfilled by separate covers, why should a couple look at a joint cover? The key benefit lies in the waiver of premium feature. In case of a life assured's death, the surviving spouse, who is entitled to a cover of up to 50% of the primary insured's sum assured, is not required to pay future premiums to keep his or her cover in force. PNB MetLife's Mera Term Plan and SBI Life's Smart Hamsafar come with an inbuilt premium waiver clause. Aegon Religare's iSpouse allows this facility as a rider.

Suppose a husband and wife, both 35, are insured under a joint life plan for Rs 1 crore and Rs 50 lakh respectively. If the husband dies, the wife will get the sum assured of Rs 1 crore. In addition, her life insurance of Rs 50 lakh will continue without her having to pay the premiums. "The benefit here is peace of mind," says Niraj Shah, Director, Marketing, Strategy and Products, PNB MetLife.

Secondly, the regular income feature will help fund a child nominee's education in the event of a couple's death. "If both spouses pass away, the child will receive a lump sum or regular monthly income," says K.S. Gopalkrishnan, MD & CEO, Aegon Religare Life.

Life insurers cite cost-effectiveness as another benefit. "If a couple buys two policies individually (non-linked, participating endowment plan), they may have to pay more premium," says Arijit Basu, MD and CEO, SBI Life. Even if the joint cover's annual premium works out to be higher than that of a regular policy, the former will be cost-effective over the long-term, thanks to the premium waiver benefit. For instance, in the example mentioned earlier, the annual premiums for joint life and regular plans are Rs 16,030 and Rs 14,512 respectively under PNB Metlife's plan. Now, if the husband died after five years of buying the regular policy, the wife would be entitled to the sum assured of Rs 1 crore. But to keep her Rs 50-lakh cover in force, she will have to pay the future premiums.

"For five years, they would have paid a premium of Rs 70,120. And she will pay a collective premium of Rs 76,950 over the subsequent 15 years," says Shah. However, the wife will not have to pay this premium if they were to opt for a joint policy. In this case, they would have collectively paid a premium of Rs 80,150 until then.

Should you consider it?

Evaluate your own situation before taking this call. The plan is handy for a couple that intends to buy a life cover with their housing loan liability in mind—they will have to complete a single proposal form and keeping track of premiums will be easier too. PNB MetLife's product also offers a cover of up to Rs 25 lakh to home-makers, which could be considered by those looking to cover their better halves who do not draw income.

However, financial planners say covers for home-makers are unnecessary as insurance is meant to replace income of the life assured for the benefit of dependents. You can consider it if you are willing to pay a small premium to obtain a cover that will help fund salaries of full-time household help and private tutors who may have to be hired in the homemaker's absence

On the other hand, if the surviving spouse earns a reasonable income and is completely in charge of finances, paying a higher annual premium, just for the premium waiver benefit, over the long term makes very little sense. "Joint life concept has no merit. Even where premium for such policies is lower than that of regular plans, the difference is just Rs 700-1,000 a year," says financial planner Suresh Sadagopan. For such minimal differential, you will be locked into the policy for 15-20 years.

Finally, while evaluating the utility of such a policy, you need to bear in mind an unsettling, yet important, point. In the unpleasant event of divorce, the couple's insurance needs will also get separated, complicating matters. If they have bought a joint term life plan, they will have to let it lapse and buy a fresh cover, which is bound to carry a much higher premium as it is linked primarily to age and state of health. Even if it is an endowment product, it will have to be liquidated prematurely, resulting in less-than-desired returns and loss of embedded life cover.

However, if you are totally convinced about the convenience and utility value of joint life covers, it might be a better idea to split your insurance requirement equally between a regular term and a joint life policy.

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