How To Build A Perfect Insurance Portfolio

Building an insurance portfolio warrants meticulous planning and a holistic understanding of your requirements. It does not follow a one-size-fits-all approach, as every one of us is different in terms of our assets and liabilities. 

It is essential to build an insurance portfolio in a manner that can plug gaps and ensure your finances and goals remain intact in case of any untoward incident. So, how can you do so? Let us find out.

Know your needs

The first step towards building your insurance portfolio is to have a 360-degree view of your needs. It is akin to drawing up a grocery budget. Only when you know your needs can you zero-in on the right product(s) from several available in the market.

For the majority, this need broadly falls into two categories — life and general. For life needs, you can either opt for a pure term plan that provides a lump sum to your nominee upon your demise within the policy term or insurance products that combine protection and investments into one.

On the other hand, general insurance helps you create a financial backup for losses incurred for assets such as home, motor, and health, among others. In other words, a general insurance policy gives you monetary support in case these suffer any damage in some form or other. 

In simpler words, your insurance portfolio should be a combination of life and general insurance plans.

Quantify requirements

Once you have a holistic view of your needs, the next step is to quantify them. Quantification entails how much insurance you need as coverage, be it for life or general. While deciding the coverage for life insurance, you need to factor in your family’s current expenses and future goals, among others. For general insurance, find out how much you are likely to pay for the assets from your pocket in case of a mishap.

For instance, if you suffer any health contingency, find out the hospitalisation cost you are likely to incur and take a cover accordingly. With rising medical costs, it’s advisable to beef up the cover with a top-up plan that increases insurance coverage over and above the base policy. 

Similarly, if you have a superbike or an expensive four-wheeler, repairing costs for the same would be on the higher side. Hence, you would need a policy with a higher coverage amount to reduce out-of-pocket expenditure.

Understand products

There are several insurance products available in the market. All of them are different in structure and serve unique needs. For building a robust portfolio, it’s vital to have a solid understanding of their objectives and working mechanism.

For example, while the primary objective of a health insurance plan is to provide funds during hospitalisation, home insurance covers financial losses in case of damages suffered by your home. Though the end goal of both these is to provide a financial backup, the scenarios under which the benefits kick-in are vastly different. So, before buying, know the circumstances under which a policy would benefit you.

Periodic review

It needs to evolve with time and at different milestones. For example, when you marry and have a family, your insurance needs would be radically different from your bachelor's days. Hence, it’s vital to periodically review it and make the necessary changes as and when required.

Periodic review will also help you plug the loopholes in your existing portfolio. Either you can add new products or forgo the ones that you don’t need. This all-important exercise bridges the gap between your actual insurance needs and the shortfall promptly.

Conclusion

The lynchpin of personal finance, insurance is your most trusted ally in times of distress. Picking up the right product and having adequate coverage can help you sail through a crisis with utmost ease. 

The author is Executive Director - Corporate ICICI Lombard General Insurance