Kangana Ranaut has 50 LIC policies: Good or bad idea. Here's what financial experts have to say

Kangana Ranaut made headlines on Tuesday by disclosing her extensive assets totaling over Rs 91 crore, as per media reports. As per her affidavit, Ranaut holds movable assets valued at Rs 28.7 crore and immovable assets amounting to Rs 62.9 crore. Notably, she also carries a debt of Rs 17.38 crore.

While Ranaut's diverse property portfolio consists of real estate investments, her financial portfolio also includes a substantial investment in insurance policies, with a notable holding of 50 Life Insurance Corporation (LIC) plans in her name.

For commoners having 50 or more insurance policies is a bad idea. Venkatesh Naidu, CEO - BajajCapital Insurance Broking Ltd, said, "Having 50 insurance policies is like trying to juggle too many balls at once. It can be confusing, expensive, and might even leave you unprotected in some areas. Imagine if you have insurance for your car, your home, your health, and so on, but you have 50 separate policies for each little thing. It's a lot to keep track of. Plus, you might end up paying for similar coverage multiple times without realising it. And when it comes time to actually use your insurance, dealing with all those different companies and policies can be a real headache."

Tracking premiums, coverage specifics, renewal dates, and beneficiaries for each policy demands substantial time and resources.  Filing claims across a multitude of policies can be a logistical nightmare. Instead, it's smarter to have a few key insurance policies that cover all your important bases albeit you are buying it for protection and not for investment purposes. Hence, that way, you'll have the protection you need without all the extra hassle and cost," added Naidu.

Echoing similar views, Rakesh Goyal, Director of Probusinsurance.com, said, "Having an extensive array of 50 insurance policies might initially seem like an air-tight safety net. However, the reality is far from reassuring. Managing such a vast portfolio is akin to maintaining a tangled web of financial commitments, each with its own set of intricacies and demands. Imagine the logistical nightmare of keeping track of premium payments, understanding the nuances of multiple policies, and ensuring compliance with various terms and conditions. It's a Herculean task that not only consumes valuable time and mental bandwidth but also increases the risk of overlooking critical details or deadlines. In the event of a claim or when these policies mature, the administrative burden only amplifies, potentially leading to confusion, delays, and even financial losses. Thus, while diversity in insurance coverage is crucial, an excess of policies only serves to complicate matters unnecessarily."

Coverage required

The amount of life insurance coverage one needs depends on various factors such as their financial obligations, lifestyle, and future goals. Generally, experts believe regular individuals should consider having 15-20 times annual income of policy coverage to replace their income in case of death, disease or disability, pay off debts and provide for their dependents' financial needs.

The crucial methods to calculate the amount of coverage is using the human life value (HLV). This assessment considers various financial obligations individuals must address throughout their lives. It includes factors like estimating the annual income required by dependents, duration of financial support needed, outstanding debts, children's education expenses, burial expenses, existing savings, current life insurance coverage, inflation rates, and potential lifestyle changes.

One can check HLV online via using HLV calculators by answering simple questions. This process of assessing coverage give you desired requirement of coverage. Alternatively, individuals can manually calculate their coverage requirements by summing up their financial responsibilities and deducting existing assets available to settle bills.

"For HNI individuals like Kangana with net worth upwards of 90-100 crore, they may require less coverage for income replacement and debt repayment compared to individuals with lower net worth. They can choose to invest in a traditional investment policy and benefit by wealth preservation, beat inflation and for tax efficiency purposes," said Vivek Jain, Head-Investments, Policybazaar.com.

How to plan to buy insurance policies

One of the first things to ponder when buying a life insurance policy is the amount of coverage needed. It's important to align this decision with the primary goal of life insurance: ensuring financial support for your family in case of your premature death or inability to work due to a chronic illness.

For instance, term life insurance plans offer death benefits to nominees either as lump sums or in instalments, making them the most straightforward life insurance option. They are popular due to their affordability and high coverage. New-age variations cater to specific consumer needs like homemakers, self employed individuals etc.

"One can opt for Unit Linked Insurance Plans (ULIPs) insurance cum investment plans, historically providing returns of 12-14% under favourable market conditions. They offer wealth creation opportunities alongside life protection and tax benefits," said Jain.

Another option can be guaranteed plans that are gaining popularity for their value proposition, providing returns of up to 7.5% without market risks. They serve as both an investment and insurance option, offering tax benefits as well.

Naidu said, "Determine whether you seek regular, long-term income or a lump sum for specific, non-negotiable goals. Consider whether you need immediate income or can postpone it. Decide on the type of policy you desire: guaranteed plans which typically offer guaranteed 6 to 7% tax free returns, offering assured income over the long term with no reinvestment risk as you can lock in today's interest rates, or ULIP plans, which involve risk through equity investment."

"Once you have identified these factors, explore different companies and their offerings, focusing on features that align with your needs. Look for flexibility in premium payment options, such as single or regular payments spanning starting from a 5-year term, and customize policy duration according to your goals and preferences," added Naidu.