Amy
Better for each family to arrange their own policy. They will get a family rate, group may be more expensive as you are then charged as individuals, unless group discount applies. Would you also trust one person to discuss both families medical histories with the Insurers. It can be quite embarrasing if medical conditions have to be discussed or the arranger will inavertantly not advise Insurers voiding the cover.
In bold below is the typical cancellation cover wording.
This cover applies when you have to cancel a journey because of the death or serious injury or
illness of:
• you;
• a companion your travel depends on;
• a member of your immediate family; or
• a person abroad whose home you are intending to stay in.
It makes no odds to the cancellation cover, if you are Insured as a group or 2 family policies. The Insurers will apply the cover as per the wording in bold above.
In regard to the holiday itself, you will need to look into the terms and conditions of the holiday booking. If someone within one family was seriously injured, I suspect the holiday company would still expect other members to travel or if not claim off the appropriate travel insurance. The cancellation cover only applies to your immediate family, a companion your travel depends on, or person abroad whose home you are staying in. The travel insurance would not cover you for cancellation if someone in the other family was seriously injured or died, unless you could convince Insurers your travel depended on them. This would still be the case if a group policy was arranged.
Huckster