Life insurance is primarily designed to provide financial protection for dependents in the event of the policyholder's death. While it offers a death benefit to beneficiaries, using life insurance as an investment vehicle has its drawbacks. One key limitation is the potentially lower return on investment compared to other investment options. Life insurance policies often come with higher fees and expenses, reducing the overall returns that policyholders can expect. Additionally, the returns generated by the cash value component of a life insurance policy may not keep pace with inflation, limiting the real growth of the investment over time.

Another factor to consider is the complexity of life insurance products. They typically involve various components, such as death benefits, cash values, and policy fees, which can be challenging for individuals to fully understand. This complexity can make it difficult for policyholders to make informed decisions about their investments and may lead to misunderstandings about the true costs and benefits of the policy.

Furthermore, life insurance is intended to serve a different purpose than traditional investment vehicles. Using it primarily as an investment may result in inadequate coverage for the intended protection of dependents. It's important to separate the goals of financial protection and investment and choose appropriate tools for each purpose. For long-term wealth accumulation and growth, individuals may find more transparent and potentially higher-yielding investment options in the financial markets, such as stocks, bonds, or mutual funds, rather than relying on the life insurance vehicle.

Life insurance companies inquire about existing insurance coverage as part of their underwriting process to assess the overall risk associated with insuring an individual. Understanding an applicant's existing insurance portfolio helps insurers evaluate their financial exposure and ensures that the coverage being offered aligns with the individual's overall risk profile.

When an applicant already has other life insurance policies, it provides insights into their financial planning and risk management strategy. Multiple life insurance policies could indicate that an individual has taken steps to secure adequate coverage for their dependents and loved ones. This information can be valuable for the insurer in determining the appropriate amount of coverage to offer, taking into account the individual's existing financial protection measures.

Moreover, asking about other insurance helps prevent over-insurance, where an individual might be tempted to purchase more coverage than is necessary. Over-insurance can lead to higher premiums, and life insurance companies aim to ensure that the coverage they provide is proportionate to the actual financial risk faced by the policyholder.

By considering an applicant's existing insurance coverage, life insurance companies aim to make well-informed underwriting decisions, tailor their offerings to the individual's needs, and maintain a balanced and sustainable risk portfolio. This practice helps insurers manage risk effectively and provide competitive and appropriate life insurance products to their customers.