Diversification in investment is needed in order to reduce the risk of loss. It is similar to the saying that one must not put all the eggs in one basket. Same is the case with the investment. One must not invest all his money in a single policy but invest in many policies so that if he faces a loss in a policy, it does not affect others.
You can keep money in cash for short-term use and make an investment in stock, bonds, insurance policies etc. Cash can be used in the time of emergencies while other investments can be used for long terms or can be sold when needed.