Split Insurance To Get Wider Protection

With lots of insurers throwing protection plans at you, you must know which one to buy and how much protection is optimum to cater to the needs to your loved ones. Another pertinent question that comes here is should you trust a single insurer with large cover or should you split your large insurance cover into multiple smaller cover plans?

Since insurance is a long-term contract with the insurer, you need to think on all the relevant aspects before signing a contract with any one insurer. Let’s check out how relevant is it to split your insurance policy into multiple, small cover policies…

Claims can be split among insurers

The average claims settlement ratio data of the industry for the year ended March 2011 stands at 87 per cent, with some insurers scoring are as low as 51 per cent. This shows that choosing multiple insurers to get insurance cover can increased your chances of getting a claim. For instance, if you have already taken your insurance from an insurer who scores low in claim settlement ratio, and are thinking of buying another insurance policy, it is advisable to go for one who scores well in claim settlement ratio.

The reason is, in case, one of the insurers takes time to settle your claims due to operational dysfunction or procedural delay, at least other half of the money would be there for your family to survive on, minimizing the agony of your dependents.

Here, claim settlement ratio is the percentage of claims settled by an insurer in a financial year.

Splitting across tenures makes sense

Splitting insurance cover over tenures is useful when you know that your liability will decrease in future. In this case, a person buys multiple insurance policies with different names, let’s say, one policy for 20 years and another for 10 years, so that if your children will be self-dependent after 10 years,  you can let one policy expire and can survive on other one.

The collective sum assured of your insurance policies should at all times be in tune with your liabilities to provide sufficient coverage to your loved ones after you. Keeping this in mind, one should increase or decrease the sum assured.

This way, the insurance will cost less, reducing your premiums and ensuring that you have liquid cash in hand.

Combining pure term plans with other forms of insurance to save in premium outgo

As pure term plans don’t pay and only investment-oriented insurance plans (ULIPs, money back, etc.) would be too expensive to get the required cover, it is best to keep both of them in your portfolio.

With online term plans coming at low cost, the cost of insurance can further come down. The strategy would also work if you invest the money in other investment avenues in place of invest-oriented insurance plans.

Split up covers work well for mortgages

If need arises and you would need to mortgage an insurance policy, a split insurance policy would be good to mortgage. It is because in this case, even if one of the insurance policies is being mortgaged, still some amount of cover would be ensured.

In addition, mortgaged policies always take longer to settle claims. According to the procedure, insurers are liable to pay to the bank first from where you have availed a loan and the rest of the amount will come to an individual’s nominee or the legal heir(s). The path is usually uneven and leaves your dependents in lot of operational hassles; hence, it is good to split your policies in smaller bits.

Take policies with different exclusions

Exclusions play an important role while buying an insurance policy. Here, one must try to include exclusions of first insurer while buying second insurance policy. For instance, some policies exclude terrorist acts while others exclude suicide or nuclear eruptions. Choosing various policies with different exclusions maximizes your coverage and thus provides peace of mind.

Easier to divide estate

Split insurance policies come handy at the time of diving estate. Here, you can assign a policy to the name of each of your children, rather than dividing the sum assured of a single policy.

Also, when you are no able to pay premiums anymore, you would wish to assign your policy to your children, smaller insurance policies will be easier to assign as they divide the burden.  Under assignment, the life insured remains the same whereas the policyholder changes as per your desire. In this case, all benefits of insurance, including tax benefits, will be transferred to the person you assign the policy to.