Whilst your “Life Insurance Portfolio” and there is a very chance that you must have a few traditional life insurance policies. It’s exceeding rare you to not have one. In fact, you too probably have at least one in your financial life. Either you bought it for tax saving purpose, or your parents, uncle, aunty, neighbourhood, friends or close relative made the decision for you and now you are carrying the legacy and paying the premium after you started earning.
Now, you must have multiple life insurance policies with a very small coverage from either the same company or various companies. Indeed, an innovative approach, fancy names of different policies that hit the market either for the sake of saving tax or an investment point of view or to also have some life cover to push a faulty product down the throats of gullible people . But question arises that what matter for you when you think about Life insurance? “Having many policies” or having sufficient life cover”?
There is not a problem with how many policies a person should have, but rather has to mange so many policies, keep those documents, ensure that they are safe and store them. This adds to your work and increase the risk of mismanaging.
Disadvantages of too many policies
The bigger disadvantage of having too many policies come up when you are not in this world, and your family has to claim your life insurance money from all the policies. This is a very under-locked factor because it slips your mind as you don’t have to deal with it today.
Another disadvantage, being traditional life insurance policies they are combination of life insurance and investments into one bundled product. Though, these policies are secured products that have your money safe, but at the cost of low returns. The return you get from these policies hardly cross inflation figures, so you could not get excellent returns from these policies. It’s more of a saving instrument rather than a capital growth instrument.
If you have 10 policies with coverage of Rs 2 lakh each, it’s same as having coverage of Rs 20 lakh from one policy, or coverage of Rs 10 lakh from 2 policies. Everything remains same for you, and your headache of managing them, along with your family’s headache eventually, comes down drastically. On your demise, your family will have to file claims for each of them, fill 10 forms, and run around offices for all those 10 policies. Whether they get the claim or not is immaterial, what is important is the amount of frustration and confusion they will undergo. This is also a metaphor for the amount of confusion and headache you are carrying in your life insurance portfolio.
Conclusion
You must get rid of some policies and bring down your number to ideally 1 or 2. Not more than that, and we are purely talking from a life insurance point of view, not an investment point of view. Clean your life insurance portfolio and get rid of some of the policies that do not serve your financial life. Rather instead of buying so many policies, one should go for a pure term plan policy having sufficient cover.
Suresh Kumar Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner’s Guild, India. He is also a member of Financial Planner’s Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in