All investors are very sure about all their investments especially related to Mutual Funds, Fixed Deposits, small saving schemes and others investments. But when it comes to insurance they are not very certain about their insurance needs and what kind of insurance they will be requiring. Broadly speaking investors/people are not certain about what kind of insurance policy will suit to their requirements. The reason for this is, insurance as a financial product is not understood very well by people, as there is a lack of proper information and proper source of education among the individuals. Also insurance awareness is not there among the individuals, which is due to the result of miss selling of insurance products by insurance agents.
It is very important that you should understand different insurance policies and manage your insurance portfolio. Managing your insurance portfolio is not a very difficult tasks, all you need to do is break your all insurance process into simpler steps. Insurance portfolio management involves following four steps:
1) Identification of your needs
Insurance itself is a very broad category and before buying any insurance policy you need to be very sure about your insurance needs. In very general terms, anyone who is looking for insurance has one or two very basic needs:
a) Life cover
b) Investment combined with life cover
Many insurance seekers generally opt for the second option as its covering their life as well as giving them some returns on their investments. But this is where most of the insurance seekers have been betrayed. In an ideal scenario you should only opt for 1 thing at a time, so if you are looking for investment you should opt for some different investments liking of Mutual Funds, Gold, and Stocks etc. As return which you will get by investing in Insurance policy is very low, and as a investment it also reduces your life cover. Also, if you select both the options in isolation, over the longer period of time you will be better off separating these two objectives.
2) Quantification of your needs
Once your need of investment policy is clear, now you need to identify how many insurance policies do you require?
Answer to this question will depend upon do you wish for a life cover or an investment plan. If you want a life cover in your insurance policy, you need to plan for all your future liabilities and you also need to have funds for life time. One needs to be very sure about Human life value in this case. Once you have clear picture in your mind about your Human Life Value you can opt for any insurance policy which will provide you life cover.
In other case, if you want to opt for investment plan, you will need to identify the investment objecting including child education, your retirement planning etc. Once you have all figures in your mind, you can opt for any insurance cum investment plan.
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3) Select the insurance adviser
Insurance has been a complicated personal finance in understanding, not because it is very difficult to understand, but because of the poor quality of insurance advice that is available. Insurance is among the most common and mis sold financial product among investors. The reason for the miss selling of insurance is because of the fact, that insurance adviser are biased towards their recommendations for insurance as they used to get commissions in favor of these insurance products. So you have to be very sure that the insurance adviser which you are consulting is not biased towards any insurance policy. Check his recommendation by asking for comparisons across insurance companies over various parameters. Understand why he is recommending one insurance plan over another. And if he is making claims that seem outlandish to you, don’t hesitate to either take it down in writing from him or get a confirmation from a company official.
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