Life cover for your family – is it critical?

I could give you the quick answer of yes but that would make for a very short article. Instead I want to provide a little information about the types of cover and benefits so you can make an informed decision about what is best for you and your family. This is your guide to pretty much everything you need to know about life cover and associated benefits

The financial services industry is geared towards two main problems that of living too long or of dying too soon. The former is mainly about savings, investments and planning for retirement, with the latter about life cover and other protection policies. This area is seen as somewhat less glamorous by many advisers who tend to focus on investment but my view is that our priority should always be about protecting families, dependents and also ourselves should things go wrong. The problems that may arise tomorrow are the first issues any good holistic adviser will address with you.

Who needs life cover?

Anyone with a financial obligation should have proper cover in place

  • Anyone with a mortgage or substantial debts
  • Anyone with financial dependents, whether children or a dependent spouse or parents.
  • The main breadwinner – to replace their income
  • The main carer in a family – to replace house and child care
  • Business owners and key employees
  • Anyone with substantial tax liabilities on death may want life cover for this purpose

Just because a spouse is not in employment it does not mean that life cover isn’t required and a payment in the event of their death allows the surviving spouse to take time off work to care for children at a difficult time and also provide additional funds should the family wish to relocate.

Are there different types of cover?

There are two main types of plan available. A term assurance policy or a whole of life plan.

A term assurance plan is designed to pay out a lump sum on the death of a life assured. It will pay out once only during the specified term and will lapse if premiums are missed. It will not acquire a surrender value so is ‘pay as you go’ cover. The level of cover can be usually reduced at a later date, if required, and the plans can also be cancelled without penalty. This is the cheapest and most cost-effective policy particularly as premiums are guaranteed.

The alternative is a whole of life plan and the clue is in the name. There are intended to be open-ended and provide cover until the time a person dies, no matter when that will be. Whilst such arrangement have flexibility and certain benefits, this generally makes them rather more expensive than a term policy with a known end date. Whole of life plans include an element of investment but this is really in order to supplement the higher premiums payable as you get older and it is not ideal as a savings plan although frequently sold as such.

I believe that you get more options and flexibility, as well as better value for money, in keeping investment and protection plans separately so in most cases would recommend a term plan.

Are all insurance companies the same?

There are a handful of companies that provide cover in the offshore market and remember that home country providers do not have jurisdiction here and cannot insure non-residents. Each company has its own offering and they are priced in accordance with their own claims experience as well as shared industry information and the additional risk of living in this part of the world.

This means that the cost may vary between insurance companies but as an independent adviser I have access to all plans so will run comparisons and recommend the most suitable company in a particular situation. This takes into account the premium quoted, service and claims history, as well as any special offers. Note that all UAE banks are linked to one insurance company so cannot provide whole of market advice.

How do premiums vary?

The premiums payable are dependent on various factors including:

  • Age
  • Gender
  • Nationality
  • Whether a person smokes or not
  • Occupation
  • Hobbies
  • Their personal medical history
  • The medical history, in respect of hereditary conditions, for immediate family members

The majority of medical issues make little difference to the cost of cover but being a smoker will increase the premiums. If you have an occupation that includes physical risk, or partake of dangerous hobbies, you will need to provide additional information, and in some cases there may be a small increase in premiums,

Are there any other benefits I should consider?

There are add-ons that you can choose to include at the time of application. The most popular is Critical Illness Cover. This pays out a lump sum in the even that someone is diagnosed with one of a long list of specified serious illnesses or medical conditions with the majority of claims being for heart disease, stroke or cancer. Plans will also pay out for coronary artery disease surgery, stroke, multiple sclerosis, major organ transplant, renal failure, Parkinson’s disease, third degree burns, Alzheimer’s disease, heart valve replacement or repair and any other terminal diseases per the policy terms.

Critical Illness Cover (CIC) is more expensive than life cover as the incidence of claims prior to age 60 years is some four to five times higher. This simply demonstrates the importance of this type of cover. Costs can be reduced by having a lower level critical illness cover than life cover and this is something than can be discussed to fit in with a budget.

Another popular option is to include Total Permanent Disability (TPD) cover, which is a relatively cheap add-on. This benefit provides a lump sum if an illness or accident leaves you permanently unable to return to work.

I am single, without dependents, do I need cover?

Whilst a single person, without any dependents or debts, may not require life cover they should certainly consider taking out some critical illness cover as they could benefit from this personally. Arguably this is particularly relevant if there is no other means of financial support.

How much cover do I need?

This depends on your debts, your income and how long any death benefits will need to last. It will also be driven by cost. There is invariably a balance between having a very large amount to protect your family and not paying too much by way of premiums.

I prefer to have a personal discussion and come up with sensible options and solutions based on your specific circumstances and your required budget.

I have protection through my employer so I don’t need more

 Any life cover provided by an employer should be seen as a bonus as it is outside of your control. It will cease if you leave than company and with the average person changing jobs every five or seven years you may not have cover when you, or your family, need it.

Would you want to trust your family’s future to your employer?

Few people have enough life cover in place for their needs, and more importantly, those of their family. Simple life cover is cheaper than you might think and I can help you arrange plans that are suitable for your needs, at a price to suit your budget.

Money does not replace a beloved husband or wife, or a parent, but the situation is even worse if those left behind are worrying about money and how they will manage to pay the bills.

Don’t leave your family’s future to chance. Take the first step to protecting your family today by emailing me at keren@holbornassets.com  to arrange a meeting to discuss your needs, or any other personal financial planning issue.

Podcast of show on Dubai Eye on this topic: Dubai Today on Dubai Eye 15/05/17 Life cover & family protection

 

 

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About financialuae

A qualified and experienced Independent Financial Adviser based in Dubai, UAE. Professional and ethical. Freelance writer on personal financial issues & the On Your Side column in The National. Regular radio guest. Senior Partner at Holborn Assets LLC, Dubai, UAE.
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2 Responses to Life cover for your family – is it critical?

  1. Pingback: Need to know: New to Dubai? Important financial information | Financial Planning in the UAE

  2. Pingback: Can you afford to have a serious illness? The facts for the UAE. | Financial Planning in the UAE

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