How to build an ideal insurance portfolio?

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Building a perfect insurance portfolio demands careful planning and a fine understanding of your requirements and financial capabilities/goals. Like most things, a good insurance portfolio does not follow the typical ‘one-size-fits-all’ approach. This is because each one of us belongs to varied socio-economic backgrounds and has different assets and liabilities. Therefore, it’s essential to build an insurance portfolio such that it stitches all the possible gaps and ensure your financial goals remain on track in the worst of circumstances. So, how to begin constructing your insurance portfolio? Let’s see.

Quantify your needs, find a purpose

The first step towards building a successful insurance portfolio is to have a practical understanding of one’s needs. This need mostly falls into two categories — life and general insurance needs. For life, you can buy a pure term plan that provides a lump sum benefit to the nominee in case of your demise within the policy term. For general losses like that on home, motor, and health, you can buy general insurance that provides monetary support against any damage to the insured.

Moving on to the second step, Ashima Gandhi, founder at Investoscope Financials LLP, suggests you find the purpose of insurance to be taken.

“It can either be for financial protection or tax-saving or both. And the last one is to find the product most suitable for your requirements. For example, term Insurance comes with many riders like accidental, critical illness, waiver of premium in case of permanent disability. Study the product deeply to understand what is suitable for you,” Gandhi suggested.

The age factor while picking insurance

Some people might have a family history of a certain illness, they should go for the critical illness rider but at the same time if they are covered for that illness under health insurance they might not opt for it. Never buy insurance blindly. Take an expert opinion or you might regret it later in life.

“Age plays an important role in term Insurance. The earlier you buy the cheaper it is. One can get a Rs 50 lakh life cover for a premium as low as Rs 3776 per year (20-year old, non-smoker male, 40-year Term). Buying a health insurance is a must especially after witnessing covid times. Try and stay away from plans with co-payments, if you are young. The sum insured can be decided based on the city you live in, your age, income and family history of illnesses,” Gandhi added.

How to quantify needs for insurance picks 

A rule of thumb is to cover 10 times the income of the bread-earner in the family. The aim is to have enough cover in case of loss of income if you’re gone.

Life insurance, according to Gandhi, is designed to pay a lump sum to the family when you die, “In case of an untimely death of the bread-earner the family faces a huge financial crisis, sometimes even to clear off a debt. Tell your family about your debts and assets, plan for it specially if you have dependents, create a fixed income for them while you are alive. There are various products in the market that give a fixed income along with the life cover.”

How to pick the right insurance product from a variety?

Remember, cheap is not always the better when it comes to insurance. It may lack benefits essential to you. However, Gandhi gave two tips to make health insurance cheaper.

“Choose family floater above individual plans. But if your parents are 50 or above, make sure they have separate insurance than your immediate family i.e spouse and kids. The premium for your parents is going to be much higher and will make your policy expensive than otherwise. On the other side, if you are a smoker, be prepared to pay extra for the cover. Another important tip is to go for top-up plans in health insurance. It gives you way more coverage at a very affordable price,” she advised.

Importance of periodic review

Your insurance portfolio must evolve with time basis life milestones. Just to give an example, your insurance needs would appear drastically different after marriage compared to your younger days. Thus, periodically review helps you to assess new needs that could be missing from the existing portfolio.

As your needs evolve, so does your monthly income. A periodic review of your insurance portfolio can highlight the need for wider coverage as your liabilities increase. Thus, it’s a vital step that should be practised with consistency.