The Importance Of Term Insurance For Wives: Securing A Family's Future

Life insurance is a way to help protect your spouse and your children's financial future if you were to pass away. It is an agreement between you and an insurer that says that if you were to pass away, they would pay the person or people you choose as your beneficiary.

In a traditional Indian household, usually, the male member opts for term or life insurance cover as he is the sole breadwinner of the family. However, with more and more women becoming working professionals, the need for a joint term insurance plan for husband and wife has increased.

A joint term insurance plan provides life coverage for the couple and has similar terms and conditions as an individual term plan. Since it covers both spouses under the same policy, it is easy to keep track of the plan. On the other hand, separate term insurance plans allow partners to choose the cost and conditions according to their own suitability and personal requirements.

In most cases, it will likely make sense for couples to take out two separate policies. This is because joint life insurance can sometimes be restrictive. Instead of simply paying a death benefit when either spouse dies, joint life insurance policies tend to be either first-to-die or second-to-die policies. That means that the benefit is contingent on whether the other person is still alive or not, rather than being standalone.

Joint vs. individual policies

Overview

Joint life insurance is a single policy that covers two people and pays out after one or both of them die. Married couples, domestic partners, and even business partners can buy joint life insurance. There are two types of joint life insurance: first-to-die and second-to-die.

On the other hand, individual life insurance policies are what people generally think of when they hear the term "life insurance". It is a cover for one person, which pays out if that person dies within the policy term, provided that the premiums are paid.

Pros of Joint Life Insurance

Joint life insurance provides peace of mind and is often a cost-effective solution to cover both parties in case of the worst-case scenario. It is also a good option if one of the spouses cannot qualify for coverage alone. Additionally, it can be used as an estate planning strategy for people with significant assets.

Cons of Joint Life Insurance

Joint life insurance is not always the best option. It can be more expensive if one spouse has health issues, and there will only be one payout per policy, even if both insured parties die during the term. It also complicates divorce proceedings and may be challenging to divide in the event of a separation. Furthermore, the surviving partner may need to purchase a new policy after the first payout, which will be more expensive due to their increased age.

Pros of Individual Life Insurance Policies

Individual life insurance policies allow for customization of coverage amounts, coverage lengths, and beneficiaries. They also provide double the coverage as two independent policies will each pay out on their own. Additionally, if a relationship ends, the policyholders can continue paying their own premiums and move on.

Cons of Individual Life Insurance Policies

Two individual policies can sometimes be more expensive than a joint policy, although this is not always the case.

The choice between joint and individual life insurance policies depends on the specific circumstances and needs of the couple. Factors such as age, health, lifestyle, and budget should be considered when making this decision. It is important to evaluate the level of coverage needed, the relationship dynamics, and the cost of both options to determine which is the best fit.

Pros and cons of joint insurance

There are several pros and cons to joint insurance policies.

Pros

• Joint insurance policies can be more affordable than two separate policies.
• They can provide financial security and peace of mind for married couples, domestic partners, and business partners.
• They can be used for estate planning, leaving a death benefit to be used for funeral expenses, estate taxes, and inheritance taxes.
• Joint insurance policies do not require marriage. Many insurance companies will sell joint life insurance policies to domestic partners or business partners.
• Joint insurance policies can be used to pay off the mortgage in the event of an unexpected death.
• In the case of simultaneous deaths, the policy pays the death benefit twice.
• Joint insurance policies can be converted into permanent insurance without providing medical evidence of insurability.
• Joint insurance policies can be beneficial if one spouse is unable to get affordable insurance on their own.

Cons

• Joint insurance policies can be more expensive than an individual policy.
• The health of one person affects the rate. Pricing is based on both people on the policy, but a second-to-die policy can be much more affordable when one person has health issues.
• It is difficult to divide joint life insurance if a couple gets divorced.
• Joint insurance policies lack flexibility compared to two individual life insurance policies.
• Joint insurance policies only offer a single death benefit, and the policy expires after that.
• Buying a new life policy at a later stage may be costlier due to the age factor.
• In an unfortunate case of divorce, one of the partners will have to take the burden of continuing to pay premiums or the policy will lapse.

Financial security for the surviving spouse

Life insurance is a way to protect your spouse and children's financial future if you were to pass away. It is an agreement between you and an insurer that says that if you were to pass away, they would pay the person or people you choose as your beneficiary.

Your spouse could use the money from your life insurance for a number of things, including:

• Paying off debt, including a mortgage
• Day-to-day living expenses
• Supporting your children
• Investing the money to provide an income stream for the future

In a traditional Indian household, usually, the male member opts for term or life insurance cover as he is the sole breadwinner of the family. However, with more and more women becoming working professionals, the family is becoming dependent on the income of both spouses. As a result, the need for a joint term insurance plan for both husband and wife has increased.

A joint term insurance plan provides life coverage for the couple and has similar terms and conditions as an individual term plan. Since both husband and wife are covered under the same policy, it is easy to keep track of the plan. On the other hand, in separate term insurance plans, the partners have the liberty to choose the cost and conditions according to their own suitability and personal requirements.

• Affordable premiums: The premiums for a joint term insurance plan for a husband and wife are much more affordable than two separate plans for both individuals. These plans allow you to save on your premiums and use the remaining amount for other important expenses.
• Comprehensive cover: With couple term insurance, you can get comprehensive coverage against a variety of eventualities like critical illnesses, terminal illnesses, accidental death cover, accidental total permanent disability, and hospicare cover at nominal premiums.
• Waiver of premium on death: Term insurance for couples allows you to receive a waiver of the premium on the payable premiums in case of one of the policyholder's death. This way, the other life assured can stay covered under the plan and receive the plan's benefits.
• Financial security of children: In case both parents/policyholders suffer an unfortunate death during the policy term, the death benefit will be paid to the nominated child. This can help the child secure their financial future and pay for their higher education or wedding.
• Maintain existing lifestyle: In case of the policyholders' death, the family can use the benefit amount to maintain their existing lifestyle by paying off the remaining loans and taking care of monthly expenses.
• Tax-saving benefits: With term insurance for couples, both policyholders can claim tax benefits as per the prevailing tax laws.

However, there are also some disadvantages to joint term insurance plans. For example, if the insured owns a joint term insurance policy, only one death payout is offered under the policy, even in the case of accidental death of both insured persons. In contrast, with separate term insurance plans, the beneficiary can receive two separate payouts. Additionally, in the case of separation or divorce, the joint policy gets converted into a single term insurance policy.

When deciding whether to get a joint or separate term insurance plan, it is important to compare the yearly premium to be paid under both options. Generally, joint term insurance plans are much more affordable than separate plans. However, it is also important to do proper research and compare the products before buying one, as joint insurance plans are not very common in the insurance market.

It is also worth noting that it is illegal to take out a life insurance policy on your spouse without their knowledge.

Tax benefits of term insurance

Term insurance is a pure protection plan that offers coverage against an unfortunate event during the policy term. One of the most significant advantages of a term plan is the tax benefits associated with it. Term insurance tax benefits can provide you with increased savings and better earnings. Here are some of the tax benefits of term insurance:

Tax Benefits under Section 80C of the Income Tax Act, 1961

The premiums you pay towards your term insurance plan can help you save money in the present as a tax benefit. You can get deductions of up to INR 1,50,000 per year for the premiums you pay towards the upkeep of your life insurance policy. While claiming the deduction, remember that your premium amount should be less than 10% of the sum assured.

Tax Benefits under Section 10(10D) of the Income Tax Act, 1961

The tax benefits are also extended to the death benefit given to the nominee. When there is an unfortunate event, the family receives the policyholder's death benefit or sum assured, which ensures that the family gets the necessary financial protection it requires, without losing out on taxes.

Tax Benefits under Section 80D of the Income Tax Act, 1961

A deduction of up to INR 25,000/- is also available under Section 80D on premiums paid for term plans with a critical illness cover option. Section 80D deals with health insurance policies, but you can still enjoy Section 80D benefits against your term plan if you have added health riders to your policy.

Tax Benefits on Term Insurance Riders

Policyholders can avail of certain add-ons or riders to strengthen their policy. In such cases, the insurer pays the total sum insured or a part of the sum insured, based on a particular illness specified by the insurance provider. The premium paid for riders that are a part of the term insurance plan are deductible up to Rs 25,000 (Rs 50,000 for senior citizens) under Section 80D of the Income Tax Act, 1961.

Deciding on the sum assured

• Age: Your age will determine the cover you will need. If you are in your 20s, opt for a high life cover.
• Income: Your income dictates your standard of living and is important while calculating the sum assured.
• Number of Dependents: The higher the number of dependents, the higher the sum assured you need.
• Lifestyle Habits: Your lifestyle habits, such as smoking and consuming alcohol, can affect your premium and, ultimately, the sum assured. These habits can result in a higher premium as you may require a higher sum assured since life expectancy reduces for smokers and drinkers.
• Health Condition: Before opting for a spouse term plan, both spouses should consider checking their health condition and family medical history. It helps determine if a health rider is essential.
• Claim Settlement Ratio: To obtain the financial benefits when the time comes, it is worth considering the reliability of the insurance provider. Compare the insurer's claim settlement ratio to evaluate their service and efforts to settle claims and compensate the claimants.

Frequently asked questions