Joint term life policies offer limited advantages

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I am getting married soon. My to-be wife plans to get a term plan after the marriage. Should I buy a combined cover then or an individual plan now?

—Ravi Saxena

You should buy an individual term life plan now and not wait to buy a joint life plan. Joint term life policies have limited advantages and only a few insurers offer these plans. You will save money by buying separate low-cost individual insurances. Also, in future, if you need to discontinue or modify coverage for any one person, it will be easier to do in individual insurances.

Are joint term plans better or separate ones?

—Kavish Bhat

I recommend buying individual policies rather than joint life insurance. There are a few reasons. First, options for joint life insurances are more limited. Second, the costs are similar. In several cases, individual insurance may work out cheaper. When you compare prices do not restrict yourself to comparing joint life and individual insurances from the same company. Instead, compare the lowest cost individual insurance with the joint life plan. Third, administrative ease is much higher in individual insurances. If in the future you want to discontinue or modify coverage for one person, you can just stop paying premium for the respective policy and buy a new one.

I plan to buy a long-term saving instrument. I do not want to buy a separate term life plan. Which would be better—a unit-linked insurance plan (Ulip) or an endowment plan?

—Syed Ansari

Between the two plans, I recommend a Ulip, for four reasons. First, administrative charges built into an average endowment plan are significantly higher than in a Ulip. As a result, the net returns for the insured are lower. Second, effective yield of an average endowment plan is usually 2-4% over a 10-15-year period. This is driven by large exposure to debt instruments and the high-cost structures. In a Ulip, you can influence the choice and allocation of funds (equity, debt or liquid funds). An equal allocation between equity and debt funds generally yields a higher return over a long period. Third, since you are not planning to buy a separate term plan, a Ulip will give you more flexibility to structure limits for death cover. Select a term insurance multiple of premium that is high. Finally, after 5 years you can exit a Ulip with no charges. This is not possible in a traditional endowment plan where surrender charges remain high throughout.

Do life insurance covers bought in India honour the claim if the death happened outside India?

—Roshni Gupta

Yes, all life insurance policies issued in India have worldwide coverage. The nominee will be eligible to get the benefits under the policy, even if the policyholder dies abroad. The claim documentation and payment will, however, be done in India.