All investors tend to have a high level of confidence in most of their investments, particularly those related to Common Funds, Fixed Deposits, small savings schemes, and other financial endeavors. However, when it comes to insurance, there is often uncertainty about their insurance needs and the type of insurance they require. In general, people are unsure about the kind of insurance contract that suits their needs. This uncertainty arises because insurance as a financial product is not well-understood by individuals, primarily due to a lack of proper information and a reliable source of education. Additionally, there is a lack of awareness about insurance due to mis-selling of insurance products by insurance agents.
To manage your insurance portfolio effectively, you should understand various insurance contracts and categorize your insurance requirements. Insurance portfolio management involves the following four steps:
Identification of Your Needs:
Insurance is a broad category, and before purchasing any insurance contract, you must be clear about your insurance needs. In very general terms, anyone seeking insurance typically has a few basic requirements: (a) Life coverage (b) Investment combined with life coverage Many insurance seekers often opt for the second option as it not only covers their life but also provides returns on their investments. However, this is where most insurance seekers make a mistake. Ideally, you should focus on one aspect at a time. If you are looking for an investment, you should consider various investment options like Mutual Funds, Gold, Stocks, etc. The returns from an insurance contract are generally low, and as an investment, it also reduces your life coverage. Additionally, if you select both options separately, over the long term, it is better to separate these two objectives.
Quantification of Your Needs:
Once you are clear about your investment strategy, you need to determine how many insurance contracts you require. The answer to this question depends on whether you need life coverage or a growth strategy. If you want life coverage in your insurance contract, you need to plan for all your future liabilities and ensure you have financial resources for your lifetime. You must be very specific about your Human Life Value in this case. When you have a clear picture of your Human Life Value, you can select an insurance contract that provides life coverage. On the other hand, for a growth strategy, you must identify your investment objectives, including child education, retirement planning, etc. Once you have all the figures in mind, you can choose any insurance contract that aligns with your growth strategy.
Selecting the Insurance Advisor:
Choosing the right advisor for your financial product recommendations is crucial to achieving your financial goals. When selecting any insurance product based on the advice of a financial advisor, ensure that the advisor you consult is impartial in their recommendations.
Regularly Review Your Insurance Contracts:
You should regularly monitor all your expenses, income, and investments, including your insurance contracts. Keep track of all your financial objectives. For instance, if you have opted for life coverage, you should monitor your liabilities and financial responsibilities. If at any point you believe that you won’t meet your goals or targets, you need to reassess your existing insurance contract. Perhaps you need to purchase additional coverage if there is a significant change in your current life coverage. The solution to this problem is to opt for slightly higher coverage at the outset since pure risk plans are usually affordable and won’t become expensive.
