Usually, individual terms plans work better than joint plans

Published in Mint on 26th Aug 2014, Written by Abhishek Bondia

Will my life insurance be in force even when I travel abroad?
—Harsh Vashist

Life insurance has worldwide coverage. So even if an untoward incident happens abroad, you are covered. Do note that when you buy a policy, you should declare all planned travels to the insurance company.

When is the payment done in a critical illness rider in a life insurance policy?
—Riyaz

Typically, critical illness rider with a life insurance policy is a fixed-benefit plan. Herein, full payment is made when the insured is diagnosed with one of the specified illnesses. Unlike a health insurance policy, here lump sum amount of the rider is paid irrespective of the expenditure incurred.
Do note that companies offer different types of critical illness riders. The three most common types are stand-alone, accelerated and waiver of premium. In case of stand-alone, the rider benefit is over and above the death benefit. Under accelerated, the payment made for the rider is deducted from the death sum assured. In the third scenario, there is no payment made at the time of critical illness but future premiums towards the policy are waived.

What is a limited premium payment plan? Is it recommended under term insurance?
—C. Issac

In limited payment plans (LPP), the duration for premium payment is less than the duration of coverage. For example, you pay premium for five years but the coverage continues for 10 years. Essentially, the premium for the last five years is amortized in the initial five years.
If you ignore the time value of money, a limited premium payment plan has a few advantages. First, a large proportion of long-term plans get lapsed because the insured does not follow up on premiums. An LPP allows an insured to complete the obligations in limited time and enjoy coverage for the full term. Second, an LPP carries a surrender value, whereas a regular pay term plan has no surrender value. Finally, in an LPP the absolute premiums paid over the term of the plan is less than sum total of the premium paid in a regular plan. The principle disadvantage is that it front-loads your liability. So, if you have liquid cash with low opportunity cost, LPP serves well.

Should I buy a joint life policy to cover my wife or would it just be better to get another plan?
—A. Mani

Under a joint life plan, you get a discount varying between 5% and 20% (depending on the insurer and type of death benefit i.e. dual death or first death). The discount makes the joint life cheaper compared with the standalone plan from the same insurer. However, there are limited insurers that offer joint life plans. Standalone covers are competitively priced and you are better off going for those.

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