Term insurance plans for non-working and dependent spouses Why is it imperative?

Published: 20th October 2022 12:07 PM  |   Last Updated: 20th October 2022 12:07 PM   |  A+A-

Term life insurance policies are essential for every portfolio and are mostly recommended to primary breadwinners or individuals with an income. But, the truth is contrary to this, and you might be surprised to know that term plans are not just suitable for working professionals but also for dependent and non-working spouses. Read on to learn more about the same in this article.

Why are Term Plans so popular?

Term life insurance plans offer many diverse benefits. Firstly, these plans provide a death benefit or lump sum payout to the insured person’s family in case of their sudden and unfortunate demise within the policy tenure. Secondly, these plans also qualify for tax deductions under Section 80C (up to Rs. 1,50,000). Thirdly, some variations of term life insurance, like plans with a return of premium (after GST and other applicable deductions), give a maturity benefit on the completion of the insurance term. This can ensure a long-term savings component as well. One can use a term insurance calculator to work out these aspects accordingly.

Why do non-working and dependent spouses need term insurance?

Typically, term life insurance is considered a contingency plan to replace an income source. If an earning member of the family (the insured) meets an unfortunate demise, is diagnosed with a critical illness, or gets into an accident, then the insurance payout can serve as a safety net for the family or loved ones of the policyholder. By this definition, non-working or earning members of the family are often left without insurance coverage.

The truth is, Non-working or dependent spouses also require term life insurance plans. This is because they put in a lot of hard work and effort towards taking care of household chores which are not always measurable in monetary terms. Here are a few of the reasons that a life cover would be required for a non-working spouse:

  • To meet household management costs - Non-working or dependent spouses usually manage (do or oversee) all daily household duties, including cooking, washing utensils, clothes, the cleanliness of the house, and much more. It is easy to get used to these chores being accomplished and forget the costs saved as a result. In case of the demise of the non-working/dependent spouse, the family will not only have to tackle the emotional brunt of the loss but also cover the higher financial cost of getting help from professionals to take care of household duties. Term life insurance plans may help relieve such financial burdens in challenging scenarios with their payouts.
  • Taking care of dependents and children - Dependent or non-working spouses also take care of other dependents like elders and children. In case of the spouse’s untimely demise, the family will have to bear the financial cost of arranging professional care solutions for children and dependents. The term insurance payouts can cover these costs and solve these issues.
  • Staying future-proof - Future plans constantly change, and non-working/dependent spouses may start working down the line or start businesses. They may also contribute financially to the household. Yet, due to age, choosing a term plan in the future will be costly. Hence, getting a plan as early as possible is always better.

As compelling as these reasons are, there may still be a question of how you can go about securing a life cover for your spouse. This is where Joint Term Insurance Plans can prove to be helpful.

What are joint term insurance plans?

Joint term insurance plans offer life coverage to the policyholder and their spouse under one agreement/contract. This plan does not have maturity benefits or payouts, and just like a pure term plan, the coverage concludes with the expiry of the policy duration. Suppose any one of the spouses meets an unfortunate demise during the duration of the policy. In that case, the insurance company will disburse the lump sum death benefit to the surviving spouse. Married spouses and couples usually take these plans. It can also be taken by business partners (may not be related as well) for joint life coverage. Parents can also get joint coverage with their children in such cases.

The modus operandi for these plans is the first death basis. What does this mean? As mentioned, whenever either of the two people insured under the policy passes away within the tenure, the surviving individual will get the lump sum death benefit, and the policy terminates. Yet, if both the insured individuals pass away at the same time, within the policy tenure, then their legal heirs/nominees will get the lump sum death benefit. Most joint-term insurance policies offer coverage up to 50% of the sum assured to the spouse in case of the primary insured person’s demise.

This means if you purchase a joint term insurance plan with a sum assured of Rs. 50 lakh with your spouse, you will have eligibility for the entire amount as your death benefit. However, your spouse will be eligible for Rs. 25 lakh. In case of the primary policyholder’s demise, the spouse will get the entire Rs. 50 lakh as the sum assured. In case of the demise of the policyholder’s spouse, they will get the amount of Rs. 25 lakh. If both spouses pass away within the policy tenure, the nominee will receive Rs. 75 lakh. These plans are ideal for including non-working/dependent spouses within the term life insurancepolicy while saving money on paying separately for two individual policies.

Some of these plans also provide fixed monthly amounts along with the sum assured as the death benefit. This contributes toward replacing the loss of income arising from the death of a spouse. In addition, premium payments will also be eligible for tax deductions (up to Rs. 1.5 lakhs) as per the guidelines under Section 80C of the Income Tax Act of 1961.

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