Life insurance policy is an indispensable aspect of sound financial planning. Any person who is an earning member of their family should have life insurance cover so that their death does not adversely affect the financial health of their family. The apprehension of what would happen to their loved ones, always influences a bread earner to choose the best life insurance policy that will benefit his dependents in case of his death.
In the present day and age, many families have double incomes because both the spouses are earning members. Therefore, both the spouses ideally should invest in life insurance policies. Basically two choices are available to them. They may opt for separate life insurance policies in their individual names, in which they would each get a separate cover. The second option is a single insurance policy, which provides a single insurance cover to both of them. This is called a Joint Life Insurance Policy. Joint Insurance policy can be taken on life of whole family including children.
Advantages of Joint Life Insurance Policy
- Single Contract : Couples who opt for joint insurance cover do it under one contract with the insurer. This reduces paperwork for them and increases manageability of their policy documentation.
- Single Premium : Another attractive feature of joint insurance policy is that both the assured parties pay a single premium. This means that it requires a single transaction which provides cover to both of them.
- Lower Premium : When couples opt for a joint life insurance policy, they pay a lower annual premium than they would have paid had they opted for individual policies. This makes joint insurance a more attractive and lucrative option for those who are on a strict budget and have a limited amount to invest in insurance.
- Naming each other as beneficiaries : Each assured party can name the other as the beneficiary under the joint life insurance policy. This means that both the spouses can get the benefit of a single policy and still have each other as beneficiaries under the policy.
Disadvantages of Joint Life Insurance Policy
- Lower Maturity Benefits : Joint life insurance is cheaper than individual life insurance, but the maturity benefits of the former are much lower than the latter, in case of endowment policies. Also, in case of term insurance, the assured amount will be lower.
- Divorce : In case of divorce, the policy holders have no choice but to forgo the benefits of their joint life insurance policy.
Kinds of Joint Insurance Policy
Joint insurance policy itself is of two kinds. In the first kind, the insurer pays sum assured on the death of any one of the insured. Here, the cover of the second surviving insured ceases after this pay-out. Here the policy cover is only till the first death.
The second kind of joint insurance policy works differently. In case one of the insured dies, the insurer makes a sum assured payout. Thereafter, a reduced insurance cover still continues for the surviving insured. Here the premium amount also decreases.
Out of the two, the first policy that pays insurance claims on the first-death basis has lower premium than the second kind of policy that provides cover to both the assured. However, it provides a more limited cover to the assured, leaving one person bereft of insurance cover in case of death of the first partner.
Joint or Individual Life Insurance Policy
Taking a life insurance policy is an important and irreversible decision. It has repercussions for the surviving family members. Therefore, it should be made only after due consideration to all the important factors that are involved.
Both joint as well as individual life insurance policies have their advantages. The principal advantage is that under both, the assured get a reasonable life insurance cover. The couple faced with this decision has to weigh the costs and benefits of their decision and make it accordingly. Two important factors that influence a couple in this regard are the premium cost of the policy and the cover that is assured. When the couple in on a budget and has limited resources to spare for insurance, joint life insurance cover can give them a decent cover for a lower premium.