Joint life insurance is cost effective

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With life insurance companies introducing joint term insurance policies that allow a couple to buy one single policy which is cheaper than two policies, many might feel it is a good idea to purchase one. PNB Metlife Life Insurance launched a term product on Monday. The only other insurer with a similar product is Bajaj Allianz Life (iSecure Term Plan). AEGON Religare Life Insurance and SBI Life Insurance are expected to launch such policies soon.

In MetLife’s Mera Term Plan, the secondary policyholder can get up to 50 per cent of the sum insured. For example, if a husband or wife (primary policyholder) is buying the policy, a working wife or husband can get life insurance up to 50 per cent of the policy. If the husband or wife has taken a sum assured of Rs 1 crore, the working wife or husband can get an additional Rs 50 lakh. However, a housewife can get only Rs 25 lakh or 25 per cent of the primary policyholder’s sum assured. In the case of Bajaj iSecure, there are no restrictions on sum assured on either.

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What separates the two existing policies of Bajaj and MetLife is that in case of death of any of the policyholders, the former’s policy will pay the sum assured to the survivor. Also, the secondary policyholder will not have to pay any premium to keep the policy active, but the primary policyholder has to keep on paying the premium. In Bajaj’s policy, even the secondary policyholder will have to pay the premium to keep the policy active.

Niraj Shah, director (marketing, strategy and products) at PNB MetLife, says the plan comes with a lot off flexibilities. For example, in case of death, the beneficiaries can opt for lump-sum payment or monthly payment for up to 10 years. If the main policyholder passes away, the policy will continue for the partner and future premiums will be waived off. In case the spouse passes away, the primary holder’s policy will continue as it is with the same premiums. Although these are online policies, policyholders would need to go for a health check-up depending on the sum insured.

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The saving is not ‘considerable’, say financial planners. If a 40-year-old man opts for a joint life policy of Rs 50 lakh for 20 years, where his wife (aged 36) is also covered for the same amount, the premium works out to be Rs 19,169 after taxes. This would vary depending on tobacco consumption and health. If they both go for individual policies rather than a joint one, the total premium will work out to be Rs 20,178 (Rs 12,864 for husband and Rs 7,314 for wife).

“While there is a saving in the plan, it also takes away the flexibility for the insured,” says Majumder. If one of the two discontinues the policy, they would still need to pay the same premium. Majumder says this make sense for the couple who buy a joint home on loan and would like to protect the heirs from liability.

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Suresh Sadagopan, a certified financial planner, explains financial planners usually break the life insurance requirement of clients into different life stages and buy three or four covers of different tenure at different age that cover the entire life of the client. For example, they would buy one policy of Rs 25 lakh for 15 years, a Rs 50-lakh policy for 20 years, and so on. This works out to be cheaper than buying one life insurance policy with a big cover. “Such a policy cannot offer this kind of flexibility,” says Sadagopan.

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