Have separate policies

Joint life policies are handy for home loan cover, but even two separate online policies will be cheaper

Buy one, get one free. Or buy one and get a 20 per cent discount on the second one. These are common schemes offered for apparel, or consumer goods. But not usually heard in the case of financial products.  

An interesting example of this is joint life insurance policies, where a husband and wife can be covered under the same policy. The advantage is lower cost than taking separate policies.

A joint life insurance policy is useful for working couples since both are earning members, says Yateesh Srivastava, chief operating officer at Aegon Religare Life Insurance. In this policy, the sum assured may be the same or different, based on the incomes of both spouses. The company is working on such a product and may launch it soon.

Life Insurance Corporation (LIC) had a traditional joint plan which has been withdrawn under the new guidelines. As of now, only Bajaj Allianz has such a policy. How it works is that both the husband and wife are insured and when one of them dies, the sum assured for that person is paid out. The policy then continues in the name of the other spouse, with the a reduced sum assured. The child’s name must then be added as the beneficiary or nominee.

The biggest advantage of a joint life insurance policy is the benefit in terms of cost. “If you were to buy two separate plans it would incur the cost of two policies such as commission costs, processing charges, intermediation costs and so on. But in a joint policy, you have to pay the expenses only for a single policy and thereby, you can get a benefit. While the general belief is that only the husband needs to be insured, since he is the primary earning member. But if the wife is earning and she dies, replacing her income is also essential as it is an additional income,” Srivastava says.

The saving in costs will be cheaper depending on the features of the plan. Since the sum assured is linked to the annual income under financial underwriting, it is possible that the couple may not get a higher sum assured if one of the spouses has very low income. This is something those buying the policy should keep in mind, says Prakash Praharaj, chief financial planner, Max Secure Financial Planners.

Since the sum assured for a single policy will be higher, the insurance company may give a rebate than when you take two separate policies of lesser amount, Similarly, for servicing charges. Assuming the charges per year is Rs 600 or Rs 50 a month, per policy, in the case of two policies it will be Rs 1,200. But in case of one joint policy it will be Rs 600.

But the biggest disadvantage of a joint life insurance policy is that it is not available online. “Today, with term life insurance policies available online at cheaper rates, it is advisable to buy two separate policies online,” says Praharaj.

In some cases, if a couple take a joint home loan, then it may come in handy if the bank insists on taking a life insurance policy linked to the home loan. But beyond that, a joint life insurance is not of much use today, he adds.