As the main income earner for your family, ensuring that the needs of your dependents are met is your priority. This includes planning for the future and the possibility that you might not be around to meet those needs for as long as you need to. This is why investing in a comprehensive life insurance policy is so important.
Life insurance will provide for your family when you no longer can and act as a shield against financial hardship due to the premature loss of an income earner. Choosing the right policy for your specific needs can be confusing with the range of providers and options available. If you are looking to buy or upgrade your life insurance in the UAE, we’ve put together a few common mistakes that you need to look out for.
Understanding your requirements
Buying a life insurance policy for the sake of buying without first thoroughly assessing your current and future needs & requirements is a common mistake. If you buy the first policy that comes up in an online search you are unlikely to get the appropriate cover for your specific needs. This will most likely lead to you either obtaining insufficient cover or overextending on more coverage than you need.
A financial advisor like InsuranceMarket.ae can assist you in comparing available options and benefits to tailor-make a policy that suits your needs.
Being too young to need insurance
Many people think that they are too young to need life insurance. Life insurance premiums are calculated according to your age, health, life expectancy, and your financial situation. But buying young means that you’re likely to get lower premiums and if you opt for a permanent policy, it allows you to build up a sizeable investment in the long term. Depending on your family situation, you may need to make provision for parents or siblings who will be dependant later on. Having a life insurance policy in place will act as a valuable income replacement in times of need.
Choosing the wrong policy
It’s important to understand the different kinds of policies available before purchasing life insurance in the UAE.
A term policy will pay out a specific death benefit and run for a set period of time, usually 20 or 30 years. A permanent life insurance policy, on the other hand, stays in place indefinitely throughout your life and allows you to build cash value that can be drawn against later on.
If you already have adequate savings and only wish to get cover for mortgage or credit card payments, a term policy may be the most suitable for you. If you want a policy that will earn some returns on your investment and you don’t mind paying a bit more, a permanent policy might be the best option.
Not reviewing your insurance policy
Your insurance needs will change as you go through the various stages of life, and it’s a mistake to think that you can buy a policy once and never have to look back. Once your biggest financial obligations have been met, it doesn’t make sense to pay for more coverage than you actually need. By the same token, assessing your financial needs periodically may reveal that you are underinsured.
You should, therefore, reassess your insurance needs with every major change in your life, such as purchasing a home or paying off a mortgage, when children are born and when they leave home. This will ensure that your coverage matches your actual needs.
Treating insurance as an investment
Whole life insurance plans generally have an investment component attached, such as Unit Linked Insurance Plans (ULIPs), which are market-linked. However, treating these as purely an investment vehicle and expecting rapid returns is not advisable. Exiting the policy too far in advance of the maturity date can potentially see you liable for a significant surrender cost.
An early exit from ULIPs is not advised as the charges are usually spread over the first five years. The primary reason for an early exit is often that the fund performance is low, but this must be compared to the market index or the scheme’s own benchmark. Hence it’s best to treat a life insurance policy as a long term investment and not to expect the same kind of returns as with pure investment products.
Not comparing rates
Term insurance plans provide high cover at low cost, but these policies generally do not have any survival benefits. You may find term plans online that are up to 25% cheaper, but these may not include all the benefits you require. Hence, the cheapest plan based only on your age and desired payout sum may not actually serve you in the long term. It’s important to compare the rates and benefits from several insurers and assess the differences in coverage
Focussing on price
Choosing a policy based on the lowest price could see you opting for less coverage than you really need, and leaving your dependants out of pocket in a time of need. Reviewing your budget to see what you can cut back on might be necessary, rather than opting for less than adequate coverage.
Buying a policy without reading the fine print might lead to significant disappointment later when you find that the premiums you have paid on a term policy have not accrued cash value. It’s best to consult a financial advisor like InsuranceMarket.ae, ask a lot of questions and ensure you understand the benefits of the policy you’re buying before signing on the bottom line.
Get quotes in your email from InsuranceMarket.ae. Our Qualified Advisers are here to help. We work with leading insurers in the UAE to source the best price for the most inclusive features. We will help you compare the best life insurance deals, customized to your requirements, and help you choose.