How Do I Choose the Right Life Insurance?

The sudden death or illness of a breadwinner often leads to a significant financial crunch in the family. Therefore, it is vital to lay down a safety net for your loved ones instead of leaving their financial situation to fate. Unfortunately, many younger people/families, especially in the UAE, tend to delay taking life insurance cover to a later date and sometimes until it’s to late.

Many people in Dubai and Abu Dhabi etc. do not always see the sense of urgency in getting life cover in place and ‘live’. A survey recently revealed that UAE is one of the countries with the highest number of the uninsured population; more than 32% of people lack any insurance policy. While for some people, it is a cost-related issue it is my opinion that it all points to a lack of awareness of the benefits of having the right life insurance.

Life insurance can be a confusing maze to navigate, and sometimes you may not know how to match your financial needs with the right policy. Let us breakdown all the aspects of life insurance and help you choose the best plan.

What Does Life Insurance Entail?

Life insurance is similar for example to an insurance policy on a property where the insurer pays when an incident or crime leads to a financial loss. However, in life policies, your beneficiaries benefit from the payouts after the death of the policyholder. The main reason for taking the life insurance cover is to have peace of mind that your dependents will not have financial problems in case of your untimely demise. Therefore, it is vital to analyse your family’s lifestyle and cashflow forecasting needs to be completed before choosing an insurance plan.

Apart from providing the ability to provide a mechanism to create a guaranteed income to your family, life insurance can also cover debts from a mortgage, education, and credit cards.

With a reasonable amount of competition between insurance companies in Dubai, it is easy to find great insurance deals. Most insurance providers also allow people to tailor their policies to broaden the scope and ability of coverage. Policyholders can also benefit from riders such as waiver of premium, serious illness, disability benefit, and accidental death benefit etc.

The premiums for life insurance are determined by the level of benefits, type of benefits, the current state of health, age, family history, currency and length of cover. Young people pay low premiums compared to the elderly who are more at a high risk of death.

What Is the Difference Between Term and Whole of Life Insurance?

Term assurance is a policy that covers a specific amount of time. For instance, if you want your kids to be protected against missing out on an education, you can take out insurance for 20 years and pay small premiums. If you die before the end of the term, your children will receive the benefit of the policy provided you were consistent with the premiums.

Most life insurance policies are term assurance with a few special additions. Why is it so popular? A term policy is very affordable, but the cost also relies on several factors like age, health condition, and duration. Remember, the insurance company is seeking to limit risk, and if you have significant risk factors, they will not offer their services, or the premiums will cost more due to a ‘rating’. Many people often also take it to secure a mortgage or personal loan.

Whole of life insurance is more complicated with higher premiums with an investment element, and the value grows like a dedicated/contractual savings plan.

Whole Life Insurance

Typically, you pay premiums for the rest of your life, and your dependent will benefit from it. While the policy is expensive, it gives you peace of mind that your loved ones will be financially secure after your demise. The cover pays a cash lump sum upon death and you can include a few living benefits, including severe illness and permanent disability. The policy gives you an option to invest across a variety of funds. Therefore, its value relies on the performance of your investments as does your future premiums.

What Factors Should You Consider When Choosing The Right Life Insurance Policy?

Currency

Most insurance companies offer flexibility in paying for insurance premiums. While you can contribute monthly, quarterly or yearly, the currency fluctuations will affect the amount you contribute. Many insurers in the UAE accept Dirhams, USD, Euros and GBP.

The Duration of Cover

You need a life insurance plan that gives you a flexible payment term. For instance, Zurich Futura will cover you up to the age of 95, but you can pay premiums for only 7 to 50 years. However, many people will want to cease payments towards retirement.

The Amount of Cover

When deciding on the amount of cover, you should analyse the lifestyle of your loved ones, pending mortgages, and debt payments. Your policy should provide adequate support to your beneficiaries.

Additional Benefits and Their Cost

Many insurers add living benefits to their policies like permanent disability and critical illness.

Should You Take Personal or Joint Insurance?

Joint life policies are often pocket friendly. However, they pay out once, and if one partner dies, the other gets a lump sum, but will not have a future life cover. Single policies may be more expensive, but they are customised. Some companies are more friendly on pricing re single polices than others.

Is the Policy From My Employer Enough?

Life insurance from your company will often barely cover all your needs. Many employees get a life insurance benefits package that is 2x/3x their base salaries. Besides, if you change jobs, you cannot transfer the policy.

Choose a Suitable Insurer

Apart from analysing the policies, you should also look at the company's financial situation. If the company goes under, you may be at risk of losing your insurance. Best to let us shop around for the most competitive premiums and attractive policies.

As a thumb rule, life insurance should be a supplementary asset and should not replace other investments. We can help you to understand the benefits you get from various policies and choose suitable insurance for your needs.

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Blog published by Mike Coady.