What is Joint Life Insurance Policy?

Say you are one of the two co-founders of a medium-scale enterprise. So, you are looking at joint financial obligations towards the organisation, right? Now, considering the uncertainties of life, what if your partner passes away from a sudden cardiac event? Won’t you be left with a significant financial liability that will be passed on to you from your partner?

Again, say you are married and are both working. Considering your married status, it’s only obvious that you would split all your financial obligations - loans, mortgage, etc. In the event that one of you unfortunately passes away, will the other one be able to handle the coagulated amount (of EMIs) alone?

Such financial anticipations require you to stay appropriately prepared - and what better option than a joint life insurance policy that offers customisation, requires nominal premiums, and offers options across when you can receive the death benefit payout?

However, joint life insurance policies involve two individuals - which means you need to double down on the details of such financial tools and ensure that this will actually add value to your future financial pool. Now, while it’s true that joint life insurance plans bring forward multiple pros, much like any other financial product, they also have the potential for some cons. You would have to read through this blog to understand if these policies are the ideal financial products that cater to your customised requirements.

Let’s begin!

Top insurers offering Joint Life Insurance Plans

(Please note: The above numbers are an average of the data from 2020 to 2023. This gives you an idea of the consistency across its performance.)

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What are Joint Life Insurance Policies?

1. Standard Life Insurance Plans

Here’s how life insurance policies generally function -

STEP 1: Amit (age 30) purchases a life insurance plan that secures him till he turns 65 years old (as had been pre-decided during the time of purchase).

STEP 2: He also chooses a few term insurance riders that would be aligned with his financial goals and lifestyle requirements.

STEP 3: Based on his age, policy tenure, cover amount, current financial bandwidth, income slab, educational qualification, habits (smoking/non-smoking), occupation, lifestyle, pre-existing medical conditions, etc. - the insurer’s underwriting team decides upon a premium.

STEP 4: The insured then decides upon a nominee, undergoes a pre-decided medical test as suggested by the insurer, purchases the plan, and continues to pay the premiums.

STEP 5: In case he passes away before he turns 65, the pre-decided sum assured is offered to the beneficiaries to help them achieve their life stage goals and short-term financial requirements.

2. Joint Life Insurance Policies

There is a slight difference in the case of joint life insurance plans. Such plans cover two policyholders, who may be business partners or husband and wife. Depending on the insurer and the plan that you want to opt for, this perk may or may not be available.

However, based on the type of joint life insurance plan that you have availed, the death benefit payout can be disbursed after the death of one policyholder or after the death of both policyholders. Based on your financial requirements, you have to make the call about which type of joint life insurance plan you should be purchasing.

2 Things to Remember about Joint Life Insurance Policies

1. Policyholders of Joint Life Insurance Plans

In the case of standard term life insurance policies, the policyholders are single, while the beneficiaries can be multiple. On the other hand, in the case of joint life insurance policies, as the name suggests, the number of policyholders is 2.

The policyholder combination may be -

• Husband and wife
• Business partners

However, neither such joint life insurance policies nor such combination of policyholders may be offered by all life insurance providers or via all life insurance policies. So, if you are planning to opt for a joint life insurance plan, make sure to ask the insurer about the same.

2. Types of Joint Life Insurance Policies

Joint life insurance policies can be of multiple types based on the categorisation -

a. Type of joint life insurance policy genres

• Joint Term Life Insurance - This type of plan is similar to a regular term life policy. The policyholders pay premiums for a certain period, and if one of them passes away, the other can file a claim. Once the insurer pays the claim, the policy ends.
• Joint Life Endowment Insurance - This type of plan offers both investment and insurance benefits. The policy has a cap on its coverage period, usually until the policyholder retires. If the policyholder survives until the policy matures, they receive an amount from the insurer, which is referred to as an endowment. If one of the policyholders dies within the coverage period, the other receives the sum assured amount.

b. Based on the timing of death benefit disbursal

• The first-to-die policy - It pays out a lump sum of money to the surviving policyholder after the first policyholder passes away. This is typically used for couples who want to ensure that the surviving spouse is financially protected if one of them dies.
• The second-to-die policy - It pays out a lump sum of money to the beneficiaries after both policyholders have passed away. This type of policy is commonly used for estate planning purposes.

What are the Advantages of Joint Life Insurance Policies?

1. Affordable premiums: If two policyholders had availed of 2 separate term insurance plans, the accrued premium would have been much more than a single term insurance policy covering both individuals. Thus, joint life insurance policies are much more affordable than standard term insurance plans for single-policyholders.
2. Flexible death benefit payout options: Joint life insurance policies offer dual death benefit payout options: first-to-die and second-to-die. Based on your choices, the death benefit can be paid out either after the 1st policyholder passes away or when both policyholders pass away.
3. Convenient plan management: Since there is a single plan involved for both policyholders, it’s easier to manage the plan—remember the premium payments for renewal. This significantly reduces the chances of lapses in the term insurance plan.
4. Equal distribution of death benefits: If both policyholders pass away simultaneously or at different times, the death benefit paid out will be distributed equally between the beneficiaries. This will benefit both the nominees and both families (provided the policyholders had requested for one nominee each from each of their families).
5. Additional perks: Depending on the policy, a joint life policy may come with added benefits such as a bonus payment or a regular income for the surviving policyholder.

What are the Disadvantages of Joint Life Insurance Policies?

1. Absence of customisation: One of the primary perks of term insurance plans is their customisation potential. However, in the case of joint life insurance policies, since there are two policyholders involved, there is no way to tailor the policy according to an individual’s medical records, age slab, income slab, educational qualification, or smoking habits. Such absence of the scope of customisation obviously pushes a simple term insurance policy with channels for easy premium calculation into becoming a far more complicated product without the chances of tapping into its complete potential via optimum riders.
2. Single death benefit payouts: When both policyholders pass away, a single death benefit payout will be involved. This means that their beneficiaries miss out on the chance of a single higher cover amount that would ideally act as an income replacement of an insured individual, thereby offering the required financial assistance to achieve their future life stage goals sans any hurdles.
3. Issues in case of divorce/separation: No, we are not just talking about the spouse getting divorced or having separation; this situation can come up in a business partnership, too. What if your business partner decides to call it quits or start a new brand of his/her own? Calling quits on a joint life insurance policy would mean losing out on your premiums and having wasted your policy tenure while thinking that your family’s financial future is now secured in the event of your unfortunate absence. On the contrary, you will have to start from scratch with a new term insurance policy.
4. Significant impact in the case of pre-existing medical conditions: In general, term insurance providers already factor in a potential policyholder's pre-existing medical conditions as an eligibility criterion. This often impacts the calculation of term insurance policy premiums. However, when it comes to joint life insurance policies, the presence of a pre-existing medical condition furthers the death benefit payout risks for the insurer. Naturally, insurers charge a higher amount over premiums in such cases.
5. Complications in case both policyholders pass away simultaneously: Accidents are by nature unpredictable. Say both policyholders get into an accident and pass away. Now, what could have been two individual death benefits (with additional perks if the policyholder had opted for an Accidental Death Benefit rider) becomes a single payout for the beneficiaries.

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Conclusion

In a nutshell, opting for affordable and effective life insurance products like term insurance plans will always be a financially smart decision to take. On the other hand, when it comes to products like joint life insurance plans, you might want to rethink the decision. You need to talk to an expert before you purchase such policies. Additionally, if you are considering purchasing a joint life insurance plan, it may be best to hold an individual term insurance policy. While this might slightly add to your current financial responsibility, you will at least be shielded from any financial vulnerabilities that might arise when parting ways with your personal and/or professional partner.

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