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

Financial security for yourself and your family members is one of the most important responsibilities. It becomes even more crucial if you are the sole earner and your family is dependent on you.

Knowing that your family could face financial hardship in your absence can be stressful. Term insurance plans are designed to ease this burden. They ensure your loved ones remain financially protected by offering an assured payout in the event of your death.

Splitting means dividing something into further parts. Thus, “splitting” in a term plan refers to purchasing more than one term insurance plan. This is very common for a term insurance plan because it covers you only for a specific duration.

It also allows you to tailor each policy to meet specific goals, such as covering a home loan, children’s education, or retirement security. By strategically selecting different policy durations and coverage amounts for each term insurance plan, you can avoid being overinsured and ensure cost-efficiency

Is Splitting Your Term Insurance the Right Move?

You should split your term cover depending on various factors such as, current and future financial situation, the status of your dependents, your preferences, and job security.  

Through this policy, you can align one policy with your income needs and another with major liabilities like loans or children’s education. It also helps diversify your coverage, especially if different plans come with varied features like income benefits or critical illness riders. However, assess affordability before committing to multiple policies.

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 your term insurance cover can help you stay insured for a longer time and may also reduce overall costs. Here’s how: most term plans offer cover for up to 30 years. So, if you purchase a plan at the age of 25, you could spend the last 5 to 10 years of your retirement without cover. To avoid this gap, splitting the plan into two separate policies can help.
   
   
2. To Meet Your Loans: Splitting your term insurance plan can help meet specific financial obligations, such as repaying loans. For instance, you can purchase a term policy that specifically covers any outstanding loan amount in case of your untimely demise. In addition, maintaining a separate plan for your family ensures they remain financially secure and are not burdened with your debts.3. Peace of Mind
   
   Splitting your term insurance plan ensures that all your major financial needs are well covered. This comprehensive approach provides peace of mind, as you can rest assured that your loved ones and liabilities are taken care of, no matter what happens.

When Should You Consider Splitting the Term Insurance Cover?

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

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 the 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 the existing coverage 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 most common reasons to purchase an additional term plan. Term life insurance only covers you for a fixed period. Suppose you bought a term plan at age 25 for 20 years. By the time you're 40, you may realise the need for more cover, especially if you're now married and have children.
   
   In such cases, you can buy a new term plan with a larger sum assured that sufficiently supports your family's financial future.
   
   
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 helps you segregate the benefits your family will receive upon your death. 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, the sum assured will be received separately.
   
   
5. Want to Leave a Legacy: You would certainly do the best for your child and grandchildren by leaving a huge wealth 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

Final Thoughts 

Splitting your term insurance plan can provide flexibility, cost savings, and peace of mind. It allows you to manage changing life responsibilities and financial needs effectively. Just ensure each plan serves a clear purpose, like income replacement, debt repayment, or legacy building.

With flexible solutions like the iSelect Smart360 Term Plan by Canara HSBC Life Insurance, you can customise your coverage, choose different payout options, and even add your spouse under the same plan. This makes it easier to adapt your protection to your evolving financial needs while ensuring long-term security for your loved ones.