By Suneeti Ahuja-Kohli
It’s not something we like to think of. Insurance salesmen are often typecast as the epitome of boring professions — second to accountants and dentists, with apologies to all professionals in those fields. And yet, we need these people. Life insurance is indispensible — as are accountants and dentists; calm down, guys. But let’s stick to life insurance, for the purpose of this article.
Most of us need insurance. Moreso working couples with dependants, in their prime for creating wealth. Yet, a lot of us don’t broach the subject. Who wants to think of an unexpected death or the loss of immediate family? If that’s how you think, you’re not alone.
The UAE population has a very low penetration in terms of life insurance. In 2015, a report by Ernst&Young suggested only 2.3 people out of every 100 have a life insurance cover. In 2016, an HSBC report revealed disturbing facts: 65 per cent of the people in the UAE believe that ‘someone will provide’ for their families, if ‘something’ were to happen to them.
For the expat population, that might mean packing their bags and hoping for a social safety net. Or perhaps the hope of a support system with extended family back home.
That sounds worrisome, or maybe, it just exposes the lack of awareness among people about life insurance.
I was surprised a couple of years ago when my husband and I bought life coverage schemes, and a friend asked if we had also bought coverage for our child, who was an infant then. He mistook a life cover for a medical one. I realised he didn’t appreciate the need for a life cover. He didn’t think it is a must-have financial product, especially when someone else’s financial plans are dependent on your income. To put it simply, life insurance has just one purpose: to make up for economic loss in case of an untimely death.
“There are many different choices when it comes to vehicles for saving over the longer term. Life insurance has certain advantages if you die or fall seriously ill. In such a case, you probably won’t be earning any more but the cover provided will ensure that the financial security of your spouse, children, parents (anyone who depends on you) will be assured,” says Philip Cernik, Chief Marketing Officer, Friends Provident International, Middle East and Africa.
Life insurance companies have a lot of schemes on offer, and it is worth consulting a professional adviser to ascertain how much insurance is needed and which policy would work best. “The overriding take-away from this is simple: save like your iPhone battery is at one per cent,” adds Cernik.
In most cases, a simple ‘term insurance plan’ is all that is needed. The premiums are low compared with other life products (whole life, endowment, ulips, etc) and coverage is the highest.
Companies offer several schemes. But what most of us need is a simple ‘term insurance plan’. The premiums are low compared to other products (whole life, endowment, ulips, etc) and coverage is the highest.
So, where should you buy one? In the UAE, you can either reach out to the insurance brokers, or contact your bank to scope out what is available. In case you’re more familiar with your home country, or have plans to settle down there eventually, you should explore options of buying life insurance from there.
And if you are unsure of where destiny might take you from the UAE, buy a life cover from an international insurance company that will offer protection globally.
But before you do that, there are a few things that you need to know. For instance, how much insurance cover do you need? The answer is to simply calculate what the economic loss would be if you lost a loved one.Vishal Dhawan, CEO, Plan Ahead Financial Services, says, “Look at a combination of factors, including living expenses of dependants, financial goals like education or marriage for the kids, outstanding loans, and see how these compare with the assets available. Life insurance should be purchased based on that gap.”
Another important question is, for how long would your loved ones need that protection? Taking insurance for the maximum term may not be the most effective solution. “Selecting an appropriate period for the coverage rather than just the longest term available is important. Also, ensure that the insurance is bought in the appropriate person’s name, depending on the income. Sometimes insurance values are bought equally for both spouses, even though one may need a larger cover than the other, due to differences in income,” adds Dhawan.
Also, keep in mind that the amount of insurance you need may change over time. It actually declines over time for most people, as obligations toward the family change, and the value of investments grow.
In your sunset years, or maybe around retirement age, you may no longer need life insurance if you are financially secure.
Moreover, in the case of working couples who do not have dependants or have created enough wealth and can afford to absorb any economic loss, there might not be a need for life insurance at all.
Some people are superstitious and close their minds to such discussions. But logically, isn’t it reassuring to know that if something were to happen to you, a life insurance contract could offer your loved ones a financial cushion? It could ensure that their plans, or what you hope to achieve for them, are all realised without any hiccups?
Nothing can make up for the loss, but plans such as these can shield the ones you care about from hardships and ensure that they can at least afford to move on with their lives.
Suneeti writes for a living. She plans to save enough to build a house by the sea and retire