Recently during a casual discussion, one of my readers told that he has opted for joint life insurance cover. Out of curiosity, i asked him the reason for same. He told me that it is cost effective. He bought joint life insurance with his wife. I was actually stumped. This guy availed home loan and was looking for a term insurance to cover the home loan. The insurance agent pitched for joint life insurance and he happily agreed. I was wondering, how can someone buy an insurance just because it is cost effective. He has not checked all the features of the policy. It means insurance company has hired a good sales team :).
I called a couple of insurance companies offering joint life insurance to check out myself. It is right that USP of this product is cost effectiveness. In my opinion, cost should be the last criterion to finalize a product after you are convinced about Insurance requirement/product. I will give higher weight to points discussed in next section.
Joint Life Insurance – Check Out the Details Before You Buy
1. Need Based Policy: An Insurance should be need based. I highlighted the same in my post, Housewives – 5 Steps to Financially Secure the Future. In the case of my reader, his wife is a housewife. I could not understand the need for joint life insurance. He was not aware of the fact that insurance cover bought by him is valid only till the first claim. Let me explain first claim insurance cover. Assuming, i bought the joint life insurance cover with my wife. I am the breadwinner of my family and my wife is a housewife. Practically speaking when will my family need sum assured? The answer is simple when something happens to me. The reason being, my wife does not have any source of income.
On the other hand, if god forbids and something happens to my wife. In this case, i don’t need insured amount as i can take care of my children. In this scenario, i will prefer that sum insured should be reserved for my children if something happens to me. In short, my coverage should remain intact. To summarize, If my joint life insurance is valid until the first claim and something to happens to me then it is fine. Assuming, something happens to my wife then i will be without cover and insured amount is PAID that i don’t need. Therefore, insurance is required for the primary breadwinner of the family.
I will be more than happy to buy joint life insurance if both husband and wife are covered individually for a sum assured. In that case, it can be truly called joint life insurance. I checked few policies that offered individual cover but they lost out on cost part. In that case, i will prefer separate policy for myself and my wife. Moreover, some of the policies are available only for working wife.
In one of the sales pitch, this product was compared to family floater health insurance in terms of features like umbrella protection. It is not right. Both are different products and it’s like the comparison of an apple with an orange.
2. Simple Product: Personally i don’t prefer financial products with a lot of caveats as i shared in my post on critical illness cover. Similarly joint life insurance is also not a simple product like term insurance plan. One of the plans offered two options i.e. term plan and endowment plan. The product of each insurance provider is different. This is not a standard product. The large no of riders offered along with plan make it more confusing for the buyer to decide. In another plan, the coverage of secondary policyholder i.e. housewife is just 25% of the primary policyholder i.e. Husband.
3. Practical Difficulties: There are a lot of practical difficulties like what will happen in the case of divorce? Secondly, If the joint life insurance policy is discontinued and one of the spouse buy individual insurance policy then the premium of the new policy will be high. Thirdly, if one of the policy is discontinued due to personal reasons i.e. dispute between husband and wife then the premium will not reduce. The premium will remain same. It will be costlier compared to individual plan.
In the case of the first claim policy, assuming there is a cost benefit and couple are working. What will happen if the couple dies together in some mishap? The beneficiary will get only single sum insured. Whereas if they would have taken individual cover then the beneficiary could have received double the amount. In such case, the beneficiaries are children of the deceased couple and financial security is of utmost importance.
Joint Life Insurance – Who should Buy?
1. Working Couple: Despite all the limitations, a joint life insurance may be economical for working couple but not always. Otherwise, you should select a product that provides individual protection. At the macro level, the insurance should be linked to the loss of income. Also, you should check for all the ifs and buts in the policy.
2. Business Partners: I observed that one of the insurance company is providing joint life insurance to business partners. I found it very useful provided the insurance amount is used to reduce the business liability of the deceased business partner. In the case of a business loan, the personal guarantee is provided by family members. In such a scenario, it makes more sense for husband (business partner) and his wife to buy joint life insurance. In short, it is important to know how the insurance amount will be utilized by either of a business partner. This option is useful only if the amount will be used to cover business liabilities.
3. Housewife/Low earning Spouse: Sometimes it is necessitated for a housewife or low earning spouse to avail term insurance. Due to low income or no income, she may not be able to avail the individual cover. In such scenarios, joint life insurance comes to the rescue. It is situational in nature and this option should be need based.
Words of Wisdom: You should only opt for term insurance. Endowment plan offered by some insurance providers is a big NO. The premium of the policy depends on multiple factors. It is not necessary that joint life insurance is economical compared to individual plan. In some cases, it is costlier than individual plans. You should compare premium of joint life insurance with individual plans. Only if the features are comparable to an individual plan and it is at least 25% cheaper than individual plans then only you should opt for it.
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