In Dubai, health insurance is mandatory, but residents are not required by law to insure their lives. However, with this pandemic an ever-increasing number of Dubai residents are seeing the emotional and financial havoc death can cause to a family. Hence there is a growing recognition of the significance of buying a life insurance policy.
Life insurance companies in Dubai can protect your family from financial difficulty due to the premature loss of an income earner or the stay at home spouse. Choosing the right policy for your specific need can be confusing with the range of options and providers available.
Buying life insurance in Dubai is not without its pitfalls. Mistakes can lead to situations where the expected payout doesn’t materialize, or it might not cover all the angles or meet all the requirements. Here are some of a few common mistakes that you need to avoid when buying life insurance in Dubai.
- Not doing a proper financial plan
Buying an insurance policy without thoroughly assessing your current financial situation and your future financial obligations is a mistake that generally everyone makes. It is highly unlikely that you will get the appropriate cover for your specific needs if one does not sit down and properly calculate the various financial commitments that would need to be fulfilled in case of death. Also, without a proper financial plan, one would not be able to identify the right budget to set aside for this project. Hence, before selecting a product or a cover, one should sit down and prepare a proper financial plan.
- Choosing the wrong type of policy
Before buying life insurance in Dubai, you need to understand the different types of policies available. A term policy pays out a specific death benefit and runs for a set period, e.g. for a 20-year policy, one pays for 20 years and gets a cover for 20 years. On the other hand, a permanent life insurance policy stays in place indefinitely throughout life and allows you to build cash value that can be drawn against later.
A term policy is ideal if you want a low-cost cover and don’t expect any returns from the policy. A decreasing term policy is a sub-set of a term policy wherein the cover reduces over a period of time. This policy is typically suitable for a mortgage. A permanent policy is an excellent choice if you want a plan that will earn some returns on your investment.
- Not reviewing the insurance policy on a periodic basis
People think that they have to buy a policy once and never have to look back and that is incorrect. As you go through various stages of life, your insurance need will change. So, reassess your insurance needs with every significant change in your life such as a marriage or having a baby. This will ensure that your coverage matches your actual requirements.
Also, in case of a permanent life insurance policy, one should periodically assess how funds in the portfolio are performing and if any adjustments need to be made before it is too late.
- Treating insurance as a short-term investment
Treating life insurance exclusively as an investment and expecting rapid returns is not advisable. Exiting the policy far in advance of the maturity date can potentially result in significant surrender costs. Hence, you should treat life insurance policy as a long-term financial commitment and have the discipline to stick with it.
- Only comparing rates
Firstly, people make a mistake of choosing a policy based on the lowest price they see, opting for less benefits than they actually require, and that leaves their dependants out of pocket in a time of need.
Thus, the cheapest plan based only on your age and desired payout sum may not serve you in the long term. It is essential to compare rates and the benefits from several insurers and assess the difference in coverage. After that, review your budget to see what you can cut back on, rather than choosing less than sufficient coverage.
Buying a life insurance policy without reading the fine print can lead to disappointment later. For e.g. when you find that the premiums you have paid on a term policy did not accrue cash value. Therefore, it is best to consult professional insurance brokers, ask a lot of questions and ensure that you understand the benefits of the policy you are buying before signing.
High-value life insurance is a secure and unique insurance plan especially designed for high net worth individuals like yourself who are business partners, directors, and large business owners, having large illiquid assets such as large real estate investments, machinery, accounts receivables, etc. This type of life insurance plan provides massive amounts of coverage from USD 1 million up to USD 200 million. It provides the opportunity for you to develop a very large asset base and offers guaranteed minimum accumulation benefit protecting you from market fluctuations. In a nutshell, life Insurance for HNWIs/UHNWIs is recommended so that they / their families/businesses continue to run at the same level of comfort and guarantees that they are used to.
Why should high net worth individuals buy high value life insurance policy?
As an HNWI/UHNWI individual, your needs are unique and hence only bespoke solutions are appropriate for you. These high-value insurance plans can be designed to meet your individual needs. Some of the reasons why one should consider a high-value life insurance policy are as follows:
High-value life insurance can help your business when insurance is taken on all the partners or keyman and the company pays for it. In the event of a claim, claim proceeds come to the business and can be used by the surviving partner to pay to the deceased partner’s successors towards buy out of his share in the business. In this way, there is no cash stress on the business to pay off the deceased partner’s family and continue running the business. In a sole proprietorship business, the family gets liquidity in the business and is not having to rush to sell the assets to pay running expenses or short-term/long-term liabilities. The cash payout helps the business to remain stable and gives time to the family to consolidate the business and carry on profitably.
Structuring Tax and Other Liabilities
It is vital for you to make sure that your estate has the liquidity to pay debts and estate taxes. In case the estate is expected to exceed the exemption amounts, planning for tax liabilities becomes important because paying off federal tax can be cumbersome and is typically due within the year of the estate holder’s death date. High-value life insurance can play a vital role in paying off estate taxes.
Legacy and Estate Planning
Estate planning is not only about estate tax avoidance/reduction, but it is also about taking care of family, dependents, and dealing with complications of transferring business, real estate, privacy protection, creditor protection, probate cost avoidance, and so on. A high-Value policy helps you fairly divide your assets amongst your successors. For example, if one of the children is not interested in joining the business, then life insurance proceeds can go to him/her and another child gets full control of the business. Legacy planning involves a lot more than estate planning. Rather than planning for “when I am dead”, it involves developing plans for things you value, the beliefs you have, the people you love, and passing all these to successive generations. A high-value life insurance can help you realize these plans in a much better way by providing the financial security you need. Apart from this, keyman protection, wealth preservation, and charitable giving are also other key objectives of buying jumbo life insurance. To conclude…
The very definition of rich implies that one is wealthy and has a great deal of money or assets. And that is typically the reason why a high net worth individual, like yourself, might undermine the importance and need for life insurance. You may assume that you already have enough wealth to protect your business and family, in case of your sudden demise or a slowdown of business due to a critical illness that you may suffer from. However, as experience has shown us and hopefully, we have been able to convince you, that is not always the case. A jumbo life insurance policy plays a very important role in estate planning as well as providing immediate liquidity to your family and/or business in case of your death or if you are diagnosed with a critical illness. Our wealth of experience in this domain will ensure that you, your assets, and aspirations are well protected and transferred onto future generations or executed as you wished it to be. To learn more about high-value life insurance, please contact us at firstname.lastname@example.org
– Savitha Shetty
Buying a life insurance policy is an important financial decision. Life insurance policies, as the name suggests, are long term contracts. Hence before signing up for something that essentially lasts you a lifetime and beyond, it is imperative that one asks these 5 important questions to your prospective financial adviser.
Question 1: The insurer’s rating and claims process
Given that an insurance contract is a promissory note, it is very important to understand the financial standing and the claims process to ascertain whether the insurance company will be able to keep the promise made to pay a claim in the unfortunate event of death.
One can ascertain an insurance company’s financial standing by reviewing their ratings. These ratings are done by agencies like Standards and Poor’s or Moody’s, to name a couple. One should opt for an A rated company when purchasing an insurance policy.
Even if a company is A rated, one should enquire into the insurance company’s claims pay out process and percentage of claims paid out. Most renowned insurance companies have a simple claims pay out process and pay out majority of their claims within 5 – 10 working days of having received all required documentation.
Question 2: Financial Advisers experience and qualification
Similarly, a financial adviser’s pedagogy is very important. If the financial adviser is pursuing this role as a full-time career to start with and is armored with the requisite qualifications to provide professional advice, there is a high likelihood that you are in safe hands. In the UAE market there are many advisers but very few who pursue this as a career and are committed to providing long term quality service. In addition, many institutions like banks also act as a financial intermediary and sell insurance policies. However, many of their sales people aren’t qualified to sell Life insurance products. So, make sure that you understand your financial advisers experience and qualifications.
Question 3: The amount of Insurance required.
Life Insurance is a replacement of your income to ensure that your family continues to live in the same manner as they do today financially, in case you are not around. Hence it is important that one buys adequate amount of life cover.
The rule of the thumb is normally 7 to 10 times one’s present annual income. However, it is important to discuss your life’s present financial situation and the objective of buying the policy with your adviser. The adviser will work on these details and advise on the amount of cover required. However, you as policy buyer need to ask pertinent questions as to how this number was arrived at. Normally most advisers will base their working on the liabilities of your life, may be a mortgage payment / loan repayment, future expected major expenses, your present lifestyle to name a few important factors. Provisions made to achieve the future goals will also be factored in and a sum arrived at.
Question 4: What are the benefits in this policy and when will this be paid?
There are 2 types of policies one which is a Term Policy normally taken for a fixed term. The other is for a longer term, either an endowment or variable unit linked policy. It is important to know until what age does your policy provides cover. Does this tenure address your needs?
In addition, Term policies have no cash value and only pay out in case of death or disability as applicable. The variable unit linked policies also have cash values. Please check if this guaranteed or variable as per the market factors. Some plans do allow partial withdrawal.
If there are living benefits attached to your policy like a disability benefit or critical illness, one needs to understand the conditions under which these benefits are payable. In some critical illnesses certain terms and conditions are involved for payment of claims. One needs to ask these questions to be better informed and to avoid unpleasant surprises in the future.
Question 5: What happens If I can’t pay the premium?
Term policies have no cash values and offer a grace period to pay the premiums, if not paid by then the policy lapses. However, some variable unit linked policies do offer flexibilities, popularly called premium holiday, after a certain period of premium paying.
Life evolves and so do conditions change. It is important to know how much FLEXIBILITY these policies offer to adapt to ones changing needs.
I hope that you ask all these 5 questions to your financial adviser before you make a commitment. We at New Age Insurance Brokers in UAE, are always available to answer any additional questions you may have.
*(Please note that product features if any discussed in this article pertains to the UAE regulatory market and can vary with other markets mainly in terms of terminologies used)