Practical Matters
After completing almost the entire life insurance module, Aman realised that he had gained a solid understanding of insurance products, policyholder rights, regulatory guidelines, claims, taxation, and important insurance concepts. However, his father explained that real-life insurance planning involves much more than understanding definitions and policy features. Every policyholder should also know certain practical aspects that make managing insurance easier and help maximise the benefits received from an insurance policy. These practical matters include maintaining policies in electronic form, calculating actual investment returns correctly, and understanding the tax benefits available under the Income Tax Act. Although these topics may appear technical at first, they play an important role in making insurance management more efficient and financially rewarding.
One evening, while reviewing all the insurance policies his family owned, Aman noticed that several policy bonds were stored in different folders. Some belonged to his father, while others were health insurance or motor insurance policies purchased over the years. Finding a particular policy document whenever it was required often took time. His father smiled and explained that modern insurance management has become much simpler because policyholders are no longer required to maintain only physical policy documents. Thanks to digital technology, insurance policies can now be stored electronically in a secure account known as an **E-Insurance Account (EIA)**.
An **E-Insurance Account** functions much like a demat account used for holding shares, mutual funds, and bonds electronically. Instead of preserving multiple paper policy documents, policyholders can maintain their life insurance, health insurance, and general insurance policies digitally in one secure electronic account. This facility was introduced after the Insurance Regulatory and Development Authority of India (IRDAI) permitted insurance policies to be maintained in electronic form through authorised insurance repositories. These repositories, such as CAMSRep and Karvy Rep, securely store electronic insurance policies and simplify policy management for customers.
Initially, Aman wondered whether an E-Insurance Account simply replaced a paper document with a digital copy. His father explained that its purpose goes far beyond convenience. An electronic insurance account centralises multiple insurance policies issued by different insurance companies, allowing policyholders to access all their insurance records through a single platform. This eliminates the need to maintain numerous physical files and reduces the possibility of documents being misplaced, damaged, or destroyed.
His father also pointed out that maintaining insurance policies electronically offers several practical advantages. One of the biggest benefits is **one-time Know Your Customer (KYC) verification**. Instead of completing separate KYC formalities every time a new insurance policy is purchased, policyholders who already maintain an E-Insurance Account generally need to complete the verification process only once. This simplifies future insurance purchases and reduces paperwork considerably.
Another important benefit is **enhanced safety and security**. Physical policy bonds may be lost because of fire, floods, theft, accidental damage, or simple misplacement. Recovering duplicate policy documents often requires additional paperwork and processing time. Electronic policies, however, remain securely stored within authorised insurance repositories, significantly reducing the risk of permanent document loss.
Aman realised that this feature could become particularly valuable during emergencies. Families dealing with unexpected medical situations or insurance claims would not have to search through cupboards and lockers looking for policy documents. Instead, policy details could be accessed electronically whenever required.
His father then explained another practical advantage—**easy premium management**. Policyholders often purchase different insurance products over time, including life insurance, health insurance, vehicle insurance, and personal accident insurance. Keeping track of multiple premium due dates can become confusing. An E-Insurance Account simplifies this process by enabling policyholders to manage several policies more efficiently while monitoring premium payments through a single platform. This reduces the likelihood of policies lapsing because of forgotten premium due dates.
Another feature that impressed Aman was the ability to **track multiple policies issued by different insurance companies**. Many individuals purchase insurance products from several insurers depending on their financial goals. Instead of visiting multiple company websites or maintaining separate records for each insurer, policyholders can monitor all eligible policies through a single electronic account, making policy administration considerably easier.
His father also mentioned an important regulatory provision. A customer is permitted to maintain **only one E-Insurance Account**. This rule helps avoid duplication of records and ensures that all electronic insurance policies remain organised under a single account.
As Aman continued learning, he discovered that electronic insurance is not merely an optional facility in every situation. According to the **IRDAI (Issuance of e-Insurance Policies) Regulations, 2016**, maintaining insurance in electronic form becomes mandatory under certain circumstances. If the **sum assured of a life insurance policy is ₹10 lakh or more**, or if the **annual premium exceeds ₹10,000**, the policy must generally be issued electronically. These regulations encourage wider adoption of digital insurance while improving administrative efficiency across the insurance industry.
After understanding electronic insurance, Aman shifted his attention to another topic that often confused insurance buyers—**investment returns**. Whenever he looked at insurance brochures, many companies highlighted the expected returns from their policies. However, his father advised him not to rely blindly on the figures presented in advertisements.
He explained that many life insurance companies present the **Internal Rate of Return (IRR)** while illustrating policy performance. IRR is an annualised measure of return that estimates the profitability of an investment. Although it is widely used, it does not always reflect the actual timing of cash inflows and outflows in insurance policies. As a result, relying only on IRR may create an incomplete picture of the policy's real performance.
Initially, Aman believed that IRR represented the exact return he would receive from his investment. His father clarified that life insurance involves multiple cash flows occurring at different points in time. Premiums are paid periodically over several years, while benefits may be received much later. Since IRR does not accurately incorporate the timing of every individual cash flow, it may not fully represent the true investment experience.
This led Aman to another important concept known as **XIRR (Extended Internal Rate of Return)**. His father explained that financially aware investors often use the **XIRR function available in Microsoft Excel** to calculate the actual return generated by their investments. Unlike ordinary IRR, XIRR considers the **exact dates** on which every premium is paid and every benefit is received. Because it recognises the time value of money more accurately, XIRR generally provides a much more realistic estimate of investment performance.
To simplify the concept, his father compared two investors who both invested the same total amount in insurance policies but paid their premiums on different dates over several years. Although the total premiums were identical, the timing of those payments differed. Since money invested earlier remains invested for a longer period, the actual returns generated by the two investors would not be identical. XIRR captures this difference by using the precise dates of every transaction, making it a more reliable measure of long-term investment performance.
Aman realised that understanding XIRR could help investors compare life insurance policies with other financial products such as mutual funds, fixed deposits, or retirement plans more objectively. Instead of relying on marketing illustrations, they could calculate the actual returns generated by their investments using real cash flow data.
By the end of the discussion, Aman understood that practical knowledge extends beyond buying an insurance policy. Managing insurance efficiently through an E-Insurance Account and evaluating policy returns using appropriate financial tools are equally important aspects of sound financial planning. These practical concepts help policyholders organise their insurance portfolio effectively while making more informed investment decisions based on realistic return calculations rather than assumptions.