What is Joint Life Term Insurance Plan & How it Works?

While Term Plans have been the forerunners of life insurance ever since its inception, joint term plans started gaining more prominence after women joined the workforce. Since they also contribute to the family income, they need to be equally insured.

Joint Term Insurance not only provides a safety net for individuals, but it also extends its protective umbrella to include their partners - a prudent choice for couples aiming to secure their family's well-being cost-effectively.

Let's understand the details of these plans and explore how they can serve as a reliable foundation for a resilient financial future.

Primarily designed to cover couples, a Joint Term Plan is a term life insurance that covers both in a single insurance policy, thus providing financial protection for both individuals under the same policy.

If either partner dies during the policy term, the surviving spouse receives the death benefit, offering a much-needed financial safety net.

It ensures that the family's financial obligations, such as mortgages or education expenses, usually decided based on the family income, are met even if one of the partners passes away.

Joint term plans typically come with affordable premiums and are a practical choice for couples seeking comprehensive coverage to secure their shared future and the well-being of their dependents.

Being a term plan, it provides only the death cover and don't have a maturity benefit

Joint term insurance is a type of life insurance policy that covers two individuals, typically spouses or business partners, under a single policy. Here’s how it works:

• Coverage: Both individuals are insured under one policy, which can be more cost-effective than purchasing two separate policies.
• Death Benefit: The policy pays out a death benefit if either of the insured individuals passes away during the policy term. This is known as a “first-to-die” policy.
• Premiums: Both policyholders pay premiums for the coverage. The premium amount is usually based on the combined risk factors of both individuals.
• Policy Term: The policy term can range from 10 to 40 years, depending on the agreement with the insurance provider.
• Beneficiaries: If one policyholder dies, the surviving policyholder receives the death benefit. If both die simultaneously, the benefit is paid to the designated beneficiaries or legal heirs

Understanding Joint Term Insurance Scenarios with Illustration

Nikunj and Aradhya plan to secure their family’s future in case something unexpected happens to either of them. So they decided to purchase Joint Term Insurance that covers both under a single plan.

They opted for a 20-year joint-term insurance policy with a coverage amount of ₹50 lakhs. The premium was affordable. This ensures that their family's future is secure.

Scenario 1: If Either of them Dies

Suppose Nikunj passed away during the policy term. Aradhya receives ₹50 lakhs death benefit, which helps cover medical expenses, pay off their home loan, and secure a children's education fund.

Scenario 2: If Both of them Die Together

Unfortunately, both Nikunj and Aradhya were in a tragic accident and passed away together. The joint term insurance policy provided a ₹50 lakh death benefit to their children or their guardians (if under 18 years).

Scenario 3: If Both Outlive the Policy Term

Fortunately, if they both remained healthy and safe throughout the policy term, they would not receive any payout when the 20-year term ends, as the term plan typically does not provide maturity benefits. 

Scenario 4: If One Person Decides Not to Continue the Policy

Suppose Aradhya decided she no longer wanted to continue the policy for personal reasons. Nikunj could continue the policy on his own, converting it to an individual term insurance policy. 

Alternatively, they could surrender the policy and receive any applicable surrender value, though this would typically be minimal for term insurance.

Disclaimer: The above illustration is a hypothetical example created for educational purposes only and does not represent a real-life scenario. Please read your policy documents to understand the terms and conditions clearly.

1. First-to-Die

2. Second-to-Die

Contrary to the first-to-die, second-to-die plans pay the death benefit upon the passing of the second insured partner. Also known as survivorship policies, these plans do not provide financial protection or income replacement to the surviving partner. Instead, the benefit goes to the couple’s beneficiaries.

The purpose of these plans is usually estate planning, preserving assets for heirs and supporting the financial needs of beneficiaries in later stages of life.

Comprehensive Coverage for Both Partners

Cost-Effective Solution

Simplified Policy Management

Tax Benefits

Rider Benefits

Flexibility in Payout Options

Conversion Options

Peace of Mind

Married Couples

Joint term insurance is a safety net that ensures the surviving spouse has financial support to manage living costs, pay off debts, and plan for future expenses, such as children's education.

This type of policy is particularly beneficial as it helps the surviving spouse navigate the financial challenges that may arise after losing a partner, providing a semblance of stability during a tumultuous time.

Couples with Shared Debts

Joint term insurance protects couples who are co-signers on loans or mortgages. Should one partner pass away, the surviving partner is not left to shoulder the burden of debt repayment alone.

This insurance ensures that the financial responsibility of any shared debt is manageable, preventing the surviving partner from facing financial hardship or risking assets.

Couples with Dependents

Having children or other dependents significantly increases the importance of financial planning. Joint term insurance serves as a safeguard for their future, ensuring that in the event of the death of one or both parents, there is financial support available.

This can cover everyday living expenses, education costs, and provide a security net to maintain their standard of living.

Partners with a Single Income

In scenarios where one partner is the sole earner, joint term insurance is crucial. It guarantees that, in the event of the breadwinner's untimely death, the non-earning partner receives financial support.

This support can be pivotal in covering daily expenses, maintaining the household, and ensuring the non-earning partner can adapt to their new circumstances without immediate financial pressure.

Couples Looking for Cost-Effective Insurance Options

Joint term insurance is an economically advantageous choice for couples. Insuring both partners under a single policy eliminates the need for two separate policies, which can often be more expensive.

This cost-effectiveness does not compromise the coverage, making it an attractive option for couples seeking comprehensive but affordable insurance solutions.

Elderly Couples

For older couples, the cost of individual term insurance policies can be significantly high, sometimes prohibitively. Joint term insurance offers a more affordable alternative, with premiums typically lower than the combined cost of individual policies.

This allows elderly couples to obtain the necessary coverage without straining their finances, providing peace of mind in their later years.

Business Partners

While not romantically involved, business partners share a unique bond and mutual financial interests worth protecting. A joint term policy can safeguard business continuity by providing financial support in the event of one partner's death.

This ensures that the surviving partner has the resources to sustain the business or manage the financial implications of restructuring the partnership.

Understanding Joint Term Insurance

Evaluate the Coverage Needs

Policy Tenure

Premium Payment Options

Conversion and Add-on Features

Claim Settlement Ratio

Policy Split Option

Tax Benefits

Comparing Plan

Read the Fine Print

Premium Deductions

One of the primary tax advantages of investing in a joint term insurance policy is the eligibility for premium deductions under Section 80C of the Income Tax Act. This provision allows individuals to reduce their taxable income by the amount they pay as premiums for the insurance policy up to a limit of ₹1.5 lakh annually.

This limit includes other investments and expenses that qualify under the same section, such as investments in the Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and repayment of the principal amount on a home loan.

The deduction is available to each policyholder in a joint term insurance plan, making it a beneficial way to lower the combined tax liability of a family. By strategically planning and utilizing the limit under Section 80C, policyholders can significantly reduce their taxable income, leading to considerable tax savings.

Death Benefit Exemption

Another significant tax benefit of a joint term insurance policy is the exemption of the death benefit from taxation under Section 10(10D) of the Income Tax Act. This exemption applies to the sum assured received by the beneficiaries upon the insured's death, ensuring that taxes do not diminish the financial support provided to the family.

The key condition for this exemption is that the premium paid annually should not exceed 10% of the sum assured. The exemption under Section 10(10D) provides policyholders with a sense of security, knowing that their loved ones will receive the full amount of the death benefit without any deductions.

Additional Riders

The premiums paid for these additional riders, such as critical illness or accidental death riders, are eligible for tax deductions under Section 80D of the Income Tax Act, which is specifically related to health insurance premiums.

This section allows for a deduction for the premiums paid for health-related riders, extending the scope of tax savings beyond the conventional life insurance premium deduction under Section 80C.

Tax Benefits for Both Policyholders

One of the unique features of a joint term insurance policy is that it allows both policyholders to avail of tax benefits individually. This is particularly advantageous for married couples or business partners who opt for a joint policy, as it effectively doubles the potential tax savings compared to a single policyholder scenario.

Each policyholder can claim deductions for the premiums paid under Section 80C, up to the individual limits, and can also benefit from the death benefit exemption under Section 10(10D) and deductions for additional riders under Section 80D, if applicable.

This collective approach to tax planning can significantly enhance the overall tax efficiency for both policyholders, making joint term insurance a financially savvy choice for partners seeking to optimize their tax savings while securing comprehensive insurance coverage.