Want term cover for a non-working spouse? Know key things

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Life insurance is a safety net that protects the family financially in case the earning member of the family dies. What if something happens to the non-working spouse? While nothing can compensate for the emotional loss, it is wrong to assume that the absence of a non-working spouse will not affect finances.

“There is a perception that non-working spouse doesn’t need insurance. Often couples mutually decide that one of them should leave job to take care of home chores and kids because hiring a cook, maid and nanny becomes an expensive affair. Women are the ones mostly leaving jobs. If something happens to them, husbands will have to hire help. Wife’s salary and support at home both will have gone. This makes it logical to get a term insurance for house-wives as well,” explains Avdesh Mishra, founder & CEO, Caterpillar Insurance & Investments.

Underwriting norms for home-makers

Atri Chakraborty, Chief Operating Officer, IndiaFirst Life Insurance Company says there is demand for term insurance for home-makers. “Life insurance is about making good the financial loss. In case of a non-working spouse, we assess the non-monetary loss to family,” says Chakraborty. A non-monetary loss is when the damage is not in terms of money directly, but still affects the family’s lifestyle. The unfortunate demise of a home-maker is exactly that.

Chakraborty further says the insurance companies look at location, the education level of the non-working spouse and social strata of the family when underwriting for a term policy.

The financial situation of the earning spouse plays a key role here. “The term insurance is given to housewives on the basis of their husband’s income. The minimum income slab that most insurance companies consider is between 5-10 lakh, but it varies from company to company and husband’s Human Life Value calculation,” explains Naval Goel, Founder & CEO, PolicyX.com.

Note that the proposal may get rejected if the wife is pregnant. “If a husband is planning to take a term plan for the wife when she is pregnant then they will have to wait for some time as pregnant wives are not eligible for the term plan,” Goel adds.

How much coverage to take?

The insurance company determines the coverage amount on several parameters. It is usually 50% of the term cover that the earning spouse has. There will also be an upper cap.

“We look at joint life cover. So, if the husband is eligible for Rs 1 crore term cover, together with his wife, he can get a cover of Rs 1.5 crore in which Rs 50 lakh cover will be for the wife,” explains Chakraborty.

The coverage could be higher depending on the socio-economic status of the family under the non-term segment. “If the non-working spouse has investments in mutual funds and stocks, etc they may get a higher cover,” he says.

Goel suggests home-makers to consider endowment policies and ULIPs too. “Endowment or ULIPs are basically investment plans that carry a very low risk of investment hence there are no strict guidelines associated with such plans and even housewives can easily take them. In case the husband has an annual income of Rs 20 lakh annually then the non-working wife can get a plan with a cover of Rs 5 lakh.”

Alternatively, they may consider insurance-linked annuities. “Insurance is a way of financial planning. Home-makers should look at buying annuities through which they can get regular income over the years. Savings-linked insurance products are also good for them,” says Chakraborty.