Home >Money >Q&A >Opt for separate life insurance plans unless joint plan offers lower premium

I am 37 years old and married with two kids. I bought a house last year on loan. Should I go for a term insurance plan, which covers my property and also provides financial security to my family, or should I choose a loan protection plan, which provides protection on my loan.

—Antil Saxena

A loan protection plan is essentially a term insurance plan with a decreasing sum assured. Under the loan protection plan the sum assured reduces every year in accordance with the loan amount so that in case of premature death the outstanding loan amount is paid off by the insurance policy. A standard term insurance policy has a flat sum assured for the tenure of the plan. The sum assured does not change with the loan amount and in case of premature death, the full sum assured is paid. This helps your family meet other financial needs as well as pay off the outstanding loan amount. So, a term insurance plan is a better alternative to a loan protection plan.

You should buy a term plan with an optimal sum assured level so that your loan and other financial needs can be met with the sum assured. A rule of thumb is to buy coverage of 10 times your annual income.

For your property, you should buy a home insurance policy. Such a policy would cover any material damage to your house. Damages could be caused by a list of named perils including fire, earthquake, and storm. Sum assured would be the reconstruction cost of the house.

We are a newly married couple and looking to buy a term plan. Will it be better to go for a joint life insurance plan or separate ones?

—Anish Mishra

A joint life plan’s key advantage is the ease of administration. So, you have to make one payment instead of two. All other benefits are on par with individual life insurance plans. In a joint life plan, you also get a discount. However, the individual plans generally work out to be cheaper, and allow you to buy the two insurances from different insurers. With an individual life plan, you can also set the sum assured based on each person’s annual income. You can also choose to later stop one plan while continuing the other. Overall, I recommend buying two separate plans unless the joint plan offers a significantly lower premium.

Abhishek Bondia is principal officer and managing director, SecureNow.in. Queries and views at mintmoney@livemint.com

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