A joint life policy covers two lives under the same contract. Joint life policies can be in the form of endowment plans, term plans or annuity plans covering two lives simultaneously. These two lives could be husband-wife, blood-relations and can even be partners, provided there is proper justifiable insurable interest.
The benefits payable on life insurance policies can be payable on combinations of one or more of the following events:
First death out of two lives covered (failure of joint life status)
First to die life insurance policies pay the death benefit only on the first insured to die. Therefore, if husband and wife were covered under this type of policy, with a death benefit of say Rs 10 lakh, and the husband or wife dies first, the surviving partner would get the death benefit of Rs 10 lakh. The policy would then be exhausted. This could also be a great mortgage redemption policy, wherein the death benefit would pay off the mortgage for the survivor to live mortgage-free.
Second death out of the two lives covered (survivorship policies) or both lives die together.
Such policies pay on the second to die. In this scenario, for example, the husband dies. The policy would not pay until the wife dies, leaving the death benefit to their beneficiary. Second to die life insurance also insures two or more people for one premium. Since the death benefit is not paid until the last insured dies, the life expectancy for the policy is based on a longer life expectancy, which allows for a lower premium. Also called survivorship policies, they are popular for many situations. In developed markets, couples or non-married partners who are retired and do not rely on each other for income will buy a survivorship policy to help their children with estate taxes. They are also bought in business partnerships where they are used to pay any business expenses after the last partner dies.
The chance of first event happening is much higher than the second, and therefore, the expected cost of claims under former is much higher than latter.
In a life annuity, the annuitant can choose one of the following options under joint life annuity plans:
Joint life annuity: Pays annuity to main annuitant throughout his/her life time and to joint life annuitant after main annuitant's death
Joint life annuity with return of premium: This provides same benefits as above but returns the premium after the death of both the lives.
Benefit of joint life insurance:
Both lives covered under the same contract; ease of managing one policy than two
The premium under joint life is likely to be lower than buying two separate policies as the premium for joint life will allow for the fact that it's a single contract and administration cost would be lower
If only one of you (among couples or business partners) has life insurance cover, the peace of mind is only one way, so if the unprotected person dies first, the surviving partner gets nothing. This means that you both get to benefit from the financial security for the future and peace of mind
Under the mortgage redemption term assurance contract, the joint life policy allows cover on both lives ensuring that the outstanding loan gets repaid even on first death of the two lives
Section 80C allows deduction of premiums if premium paid in the policy is greater than 10% of the sum assured ( i.e. if the SA is less than 10 times the premium). For a single premium policy, a cover of 10 times the premium makes it very expensive. However, single premium joint life polices can be designed for low mortality charges and in a tax-compliant manner.
Keep in mind, insuring two lives is cheaper than what you would pay to insure both separately. However, it can become a sticky situation if the married couple divorces. Then, you have a joint policy on your ex-husband or ex-wife. In the scenario where there are kids, it might be good to discuss setting up a trust where the money can be allocated for the kids in years to come.
The writer is appointed actuary & chief risk officer, Kotak Life Insurance
