How to navigate the life insurance maze in the UAE

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  • Life insurance is often a confusing subject for many of those residing in the UAE.
  • A study has revealed that UAE residents lack awareness about the importance of life insurance.
  • The debate is always over term vs. permanent insurance.
  • There are different policies to suit different needs.
  • It’s important to assess your current financial situation before making your life insurance investment.

In general, the approach toward life insurance tends to remain idle. It is a subject that people tend to delay until “one day”.  It is like an extra or something out of the picture for most young people.
Many of those living and working in Dubai may not be planning long ahead.
Why all the sense of urgency? One might ask.
Or why frantically purchase an insurance that you’ll likely never use?
Let’s break off all of this down so that you can make the decision for yourself.

Life insurance investment

So, what is life insurance and what does it consist of?

The whole point of insurance is to make sure your family will be financially comfortable if something were to happen to you.
There are essentially two types of life insurance: term and permanent.

Term insurance consists of paying a small premium that typically lasts for 10-30 years with the only potential benefit being the payout upon death. We see why this could somehow be attractive to young parents: the financial protection provided by the death benefit is the whole purpose of life insurance, and it’s a cheaper term policy that covers you when you’re younger and least likely to use it.

Permanent insurance, on the other hand, is more intricate, with a cash value component that grows over time, similar to a savings plan or an investment account.

Types of permanent insurance include

  • Whole life insurance (the most basic type).
  • Variable life insurance (more investment options).
  • Universal life insurance (a blend of whole life and term).

UAE life insurance facts

According to an HSBC survey and as reported by Gulf News, the UAE has one of the highest uninsured population in the world, and the actual number of people who don’t carry a life insurance at all represents more than just 32% of the population.

Why so?

Apart from being a cost-related issue, according to HSBC, 65% of people in the country think that it is someone else’s responsibility to provide financial stability to their families if someone were to happen to them. The bank told Gulf News that the results of the survey indicate a lack of awareness and understanding about the importance of investing in insurance.

Confused as to whether permanent life insurance fits into your financial plan?

Life insurance is often confusing because permanent policies come in various forms and different options depending on the insurance companies. With so much conflicting advice on the matter, one can’t be so sure about how to make such a financial investment
Permanent insurance is pricier because it covers you for your entire life.
But depending on how the permanent life insurance policy is designed, it could be a source of tax-free income on the long term, in that it accumulates a cash value.

Why a permanent life insurance investment may be a good option for you

It may be suitable for your needs if:

  • You want a more reliable investment with a lower rate of return.
  • It fits into your overall financial plan.
  • A guaranteed level premium is important to you.
  • You’re concerned about asset protection.
  • You need an element of forced savings to better manage your finances.
  • You want to accumulate cash value.
  • You are willing to pay upscale fees and agent commissions associated with permanent policies.

Why term insurance may be a good option for you

It may be suitable for your needs if:

  • You can’t afford a high monthly premium. Premiums for term life are much lower than permanent insurance.
  • You wish to go easy on your finances. Term is a good option as it may cost just a few hundred dollars per year.

Also, it is often required to secure a mortgage or personal loan. Term life insurance is usually bought for this reason; consider it as de-facto mandatory.

The takeaway

Life insurance should supplement your other assets instead of replacing them. At the end of the day, you’ll want what’s best for you.
The best bet would be to assess your current financial situation and your overall goals before making a final decision as to whether you need it at this point in time.
Using permanent life insurance as an investment might make sense for some people in some situations – usually high net-worth individuals looking for a way to minimize estate taxes. Otherwise, term insurance may be your best bet if you wish to get the ball rolling.
PS: you can often keep your “Whole Life” insurance plan if you decide to leave the UAE at some point in time.

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Aqeed is an insurance technology company that aims to make insurance simple, transparent, and accessible. We are on a mission to help you become better at everything related to insurance. From the decisions you make to the choices you take, you are In Sure Hands.

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