Term Insurance Plan: Why Splitting Cover is a Great Idea?

Written by : Knowledge Center Team

2024-08-02

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Financial safety for yourself as well as your family members is one of the most important things to do too. It becomes even more important if you are the sole earner and your family members are dependent on you. Knowing that if something happens to you, your family will struggle financially can give you a lot of stress.

Term insurance plans are built to take care of this stress. These ensure that your family remains financially protected even after your death by giving an assured amount to your family when you die.

What does Splitting a Term Insurance Plan Mean?

Should you Split your Term Insurance Policy?

Whether or not you should split your term cover depends on various factors. These can include your current and future financial situation, the status of your dependents, your preferences, and job security.

Advantages of Splitting a Term Insurance Plan

You may end up buying separate term insurance plans at different stages in your life. Usually, the new plans are more evolved and offer unique benefits, while the old plans have the advantage of age.

Here are the three most important advantages of splitting a term insurance plan:

1. Get covered for a Longer Period

Splitting term insurance cover can help you to get covered for a longer time and can also save costs. Here’s how. Most term plans offer coverage for up to 30 years. So, if you have purchased a cover at the age of 25, then you will have to spend the last 5–10 years of your retirement without coverage. To avoid this, splitting the plan into two can help.

2. To Meet your Loans

You can split your term plan to meet various purposes. For example, if you have a loan, then you can take a term plan that will pay for the loan in case you die. So buy another plan to take care of the family so they do not have to deal with your debts.

3. Peace of Mind

Splitting the term plan helps you cover all your major ground. This will help reduce stress by knowing that all things are taken care of.

When should you Split the Term Insurance Cover?

If you come across the following cases, then you can consider splitting your term insurance. But understand the policies and assess your finances before making any decision. Purchasing more than 3 term plans can not only be difficult to handle, but can dent your finances as well.

1. Low Sum Assured in Old Plan

Splitting is a great idea when your current term insurance plan offers a low sum assured and does not have an option to increase cover.

You must know that the cost of purchasing an insurance policy is lower when you are younger. Many individuals buy a term plan at a younger age for a lower premium, as there are fewer responsibilities early on.

But as we age, it is likely that your existing cover may not be enough for your family’s needs.

2. No Income Benefit

If you die unexpectedly, your family not only has to cope with the loss mentally, but financially as well. After your death, your income also goes away. Several term plans offer to provide you with a payout in the form of a monthly income.

Learn how to ensure a regular income stream for your family.

This helps the family deal with their regular expenses with ease. You can think of splitting the term plan if you do not get this benefit with your existing one.

3. Old Plan Expiring Early

This is one of the major reasons for buying another term plan. The basis of a term life insurance policy is that it only covers you for a specific duration. Suppose you purchased a term plan at the age of 25 for 20 years. By the time you reach 40, you realise that you need another cover as now you are married and have kids.

At this stage, you can purchase another term plan with a large cover so that it is enough to take care of your family.

4. Distribute Benefits Without Disputes

Purchasing multiple term plans can be a good idea to reduce disputes between family members or others after your death. Splitting term insurance cover will help you segregate the benefits that your family will receive once you die.

Let us understand how you can do this with an example.

Ram is a 35-year-old man. He decides to take a term plan to ensure the financial safety of his family. But to avoid any dispute, he decides to split the cover and purchase two term plans. He assigned his wife as a nominee in one and his child in the other. If he dies, then the sum to be received will be separate.

5. Want to Leave Legacy

You would certainly want to do the best for your kids and grandkids by leaving a huge sum in the form of a legacy when you die.

Thus, you can split your term insurance into two plans. Purchase one plan that could cover you till retirement, i.e., age 60, and the other plan (whole life insurance plan) could help you leave a legacy for your loved ones.

Click to use : Term Insurance Calculator

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.