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It is more cost-effective to buy individual term plans

LiveMint logoLiveMint 16-07-2017 Abhishek Bondia

My husband and I are less than 35 years old and both of us contribute equally to the household. We have two children, both under 10 years. Is it possible that we buy a joint life insurance policy, so that if anything happens to either of us, the insurance policy would replace the other person’s income? If not, can you please suggest a better solution? Our annual family income is about Rs50 lakh, pre-tax.

—Indu Lahiri

Yes, you can buy a joint life insurance policy for your husband and you. The insurance would pay the sum assured in case of death of either spouse. Only a few insurers offer plans for joint life insurance. And, the premiums for joint-life plans are relatively high.

I recommend you each buy separate individual term plans. The basic death benefit is identical for joint life and individual term life insurance policies but the individual term life insurances can be more cost effective. 

I recently completed post-graduation in medicine. My earning potential is good but my current income is low, even by non-medico standards. How should I plan my life insurance? My parents have taken substantial loans for my education, apart from an education loan, which I will repay. But in an unlikely event, I don’t think I can currently buy an insurance cover that will cover that loan amount. What would be the best option for me to take a life cover?

—Sudha Shenoy

Insurance companies look at your current annual income and liabilities, when underwriting life insurance. You could get a sum assured multiple of 20 to 25 times on your current annual income.

In case the cover offered by life insurers is not sufficient to cover the loan, you can take an accidental death insurance to cover the gap. 

I have a few queries regarding group insurance schemes. I wish to know the guidelines for covering a registered Trust, under group insurance.The Trust comprises lawyers only, with a very reputed lawyer heading the Trust. The Trust is involved in providing legal and related information through social media, free of charge. The Trust is also involved in interest-free, medical help to its members. Kindly help us out in this regard.

—K.S. Subramanyan

The Insurance Regulatory and Development Authority of India does not allow insurers to issue policies to groups, which are formed specifically for the purpose of buying insurance. However, if there is an existing group, which may be of members with a common interest, they could buy a group insurance policy as per the regulator’s guidelines. Such groups could look to buy a group term life insurance policy with a non-employer–employee relationship.

Do I need to compulsorily buy group gratuity policy for my employees?

—Rinish Mahadevan

It is not compulsory to purchase a group gratuity policy. As an employer, you have to compulsorily make a provision for this. If you do not subscribe to a group gratuity policy, then you do not get an income tax deduction for making this provision. The deduction is available only when the money is actually paid out to employees. If you do subscribe to a group gratuity fund, the income tax deduction is available on the annual contribution to the fund. Group gratuity funds, if well managed, can give good returns. You should consult your tax adviser on the prevailing tax rules before adopting a solution.

What is EDLI Insurance?

—Vineeth E.K.

EDLI stands for Employee Deposit Linked Insurance. All subscribers to Employees’ Provident Fund are mandatorily required to contribute towards life insurance. 

The provident fund rules specify that if an employer can purchase a recognized private life insurance policy that has better coverage than the cover provided by the provident fund, then the employer can seek exemption from the provident fund-levied life insurance charges.

Abhishek Bondia is principal officer and managing director, SecureNow.in

Queries and views at mintmoney@livemint.com

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