One life insurance policy or split cover? How families should decide

Life insurance planning should go beyond identifying the household’s highest earner and assigning the largest possible cover to that person. Shruti Oke, Senior VP and Head of Product Management, Tata AIA Life Insurance, said families should assess the financial, practical and caregiving contributions of each member before deciding whether one large policy or separate covers would offer better protection.

Look beyond income

According to Oke, a large policy on one primary earning member can provide substantial financial protection, but may not fully address the risks faced by a household that depends on more than one person.

In a dual-income family, both incomes may be important for meeting regular expenses, repaying loans and achieving long-term goals. At the same time, even when one person does not earn, their contribution through childcare, household management, support for ageing parents and other responsibilities can carry significant financial implications if they are no longer present.

“Families should therefore ask: Whose absence would create a meaningful financial, practical or emotional disruption for the household?” Oke told Business Today.

Where more than one person meets that test, each should ideally have protection suited to their own role, responsibilities and future obligations.

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Single policy offers simplicity

A single large policy can be easier to purchase and manage, particularly when one person’s income accounts for a significant portion of household financial commitments.

However, its key limitation is that it protects the family against the loss of only one individual. If the household also depends on another person’s income or non-financial contribution, that risk could remain uncovered.

A split-cover strategy, by contrast, allows each policy to be structured around the individual it covers. The sum assured, tenure and benefits do not necessarily have to be identical, and can be considered in relation to each person’s age, health, responsibilities and long-term needs.

Oke said this approach can provide more comprehensive protection, although it may involve a higher combined premium.

When split cover may make sense

A two-policy approach may be particularly relevant for dual-income households, families with joint liabilities such as home loans, and households where one person earns while another manages children, elderly parents or the home.

It may also suit couples with separate financial responsibilities, dependants or long-term goals, as well as self-employed or entrepreneurial households where income and responsibilities can change over time.

This is the principle behind propositions such as Tata AIA Life’s “1+1”, through which consumers can purchase a policy for themselves and a separate policy for an eligible family member.

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Avoid focusing only on the highest earner

Oke said one of the common mistakes families make is treating life insurance as a decision concerning only the highest earner. Families should consider each member’s income, caregiving and household responsibilities, outstanding loans, children’s education, ageing parents and other dependants.

They should also review age, health profile, insurance eligibility and whether existing coverage remains adequate as circumstances change.

“Every family member may contribute in a different way, but that does not make one contribution less important than another,” Oke said.

Ultimately, the right strategy depends on the household’s individual circumstances. The objective is to ensure that the loss of any essential family member does not leave a significant financial or practical gap.

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