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Insurance Overload: Are You Hoarding Policies Instead of Securing Your Future?

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October 09, 2024

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When it comes to safeguarding your family's future, the topic of insurance can often feel overwhelming. You may wonder: how many life insurance or protection products do you really need? Contrary to popular belief, having more insurance policies isn’t always better. Instead, a well-balanced insurance portfolio tailored to your unique situation is crucial for long-term security.

While more than 50% of Indians don't have any form of life insurance coverage*, there are many who have purchased too many policies in a bid to gain confidence. Let’s understand about this phenomenon of insurance overindulgence and find out whether you are a policy packrat.

Understanding the Value of Protection Life Insurance

Imagine this: you are the sole provider for your family. Your income supports everything from your children’s education to daily living expenses. What happens if you are no longer there to provide for them? Protection life insurance acts as a safety net, ensuring that your loved ones can maintain their standard of living even in your absence.

For example, consider a family in India with a monthly income of ₹50,000. If the primary earner suddenly passes away, that income disappears overnight. Without a robust life insurance policy, this family could quickly find itself in financial turmoil, struggling to pay for school fees, home loan EMIs, and daily necessities. A well-structured protection life insurance plan can provide a death benefit that replaces that lost income, offering peace of mind in an uncertain world.

On one hand, there is a clear need to educate people about the importance of having adequate protection via life insurance policies, and on the other hand, there is another extreme.

The Risks of Over-Diversification

Many people believe that the more insurance policies they hold, the safer they are. However, this is not always the case. Over-diversification can lead to confusion and financial strain.

Many people are sold 1-2 insurance policies every few years. While they diligently pay premiums, they often overlook the total sum assured across these policies. This can create a false sense of security, as multiple policies may not effectively serve their interests. Instead of providing real coverage, they build a mirage of confidence, ultimately leaving them vulnerable to financial risks.

Imagine a scenario where an individual holds multiple life insurance policies from different providers, with varying coverage amounts and premium payments. This can quickly become a complex web of obligations, leading to missed payments and overlapping coverage.

Instead of providing security, it may lead to unnecessary financial stress. For instance, a person paying premiums for three separate life insurance policies totalling ₹300,000 per year might find that one policy alone could meet their coverage needs for only ₹150,000. In such cases, money is wasted on overlapping policies that do not offer additional benefits.

Moreover, managing several policies can be time-consuming. You might find yourself spending hours trying to understand the fine print or remembering payment due dates. Instead of feeling secure, you may feel overwhelmed, realising that more doesn’t necessarily mean better.

Too Many Policies But Still Under-Insured

Many individuals mistakenly believe that accumulating multiple insurance policies guarantees better protection. However, this approach often leads to problems. Such people pay premiums diligently while neglecting to consider the total sum assured across all their policies. This creates a false sense of security, leaving them vulnerable to financial risks.

For example, a young professional, Anil, who has acquired five different life insurance policies over the years. Each policy has a coverage amount of ₹10 lakh, totalling ₹50 lakh. On the surface, this might seem like adequate protection. However, Anil may not realise that this amount is insufficient to cover his family's financial needs. In the event of his untimely passing, the ₹50 lakh may not adequately support his family's living expenses, mortgage, or children's education.

This situation illustrates the dangers of having too many policies without understanding the actual coverage required. The emotional toll of inadequate insurance can be immense, as it amplifies stress during already challenging times. Instead of bringing peace of mind, an excess of policies can lead to confusion and anxiety, ultimately leaving loved ones unprotected when it matters most.

Assessing Your Insurance Needs

To find the right balance in your insurance portfolio, it’s essential to assess your individual needs. Start by evaluating your current situation:

1. Family Size and Dependents: Consider how many people rely on your income. More dependents typically mean a higher coverage amount is necessary.

2. Income and Expenses: Assess your monthly income and essential expenses. Your insurance coverage should ideally replace your income for several years.

3. Loans and Liabilities: Take into account any outstanding loans, such as mortgages or personal loans, that could burden your family.

4. Future Aspirations: Think about your family’s long-term goals, such as your children's education or your spouse’s retirement. How can life insurance help secure these dreams?

5. Life Stage: Your insurance needs will evolve as you progress through different life stages. A young couple may need less coverage than someone with multiple dependents and significant liabilities.

The Right Number of Protection Life Insurance Products

Now that you understand your insurance needs, the next step is to find the right number of protection life insurance products. Generally, most financial advisors recommend having one comprehensive life insurance policy that covers all your needs.

Consider a term life insurance plan, which offers high coverage at an affordable premium. For example, a ₹1 crore term insurance policy might only cost you around ₹10,000 to ₹15,000 per year, depending on your age and health. This single policy can provide financial security for your entire family, eliminating the need for multiple policies.

However, if you find that your situation requires it, having an additional policy can be beneficial. This could be a whole life insurance policy that combines protection with savings, ensuring your family is covered throughout your lifetime. Ultimately, the goal is to create a simple yet effective insurance strategy that aligns with your family's needs.

Conclusion

Too many insurance policies can lead to unnecessary confusion, while too little can leave your family vulnerable. Protection policies, such as term insurance, is vital in ensuring your loved ones are secure in your absence. By assessing your needs thoughtfully and understanding the role of insurance in your financial plan, you can take control of your family's future.

Take a moment today to review your insurance policies. Ask yourself if your current coverage is adequate. Remember, it’s not just about the number of policies you hold; it’s about the peace of mind that comes from knowing your family is protected.

Source

*https://www.indiaspend.com/988-mn-indians-do-not-have-life-insurance-those-who-do-are-insured-for-7-8-of-whats-needed-to-cover-financial-shock/#:~:text=Chennai%3A%20At%20least%20988%20million,according%20
to%20our%20analysis%20of

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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