How Does Life Insurance Work in UAE, Dubai?

If you think life insurance doesn’t offer many benefits, imagine a situation where a family loses their sole breadwinner. This can lead to a lack of funds not only for long-term goals but also for day-to-day expenses. 

Such a scenario can be easily avoided with life insurance, which acts as a protection shield for the insured individual’s family in case of their demise. The life insurance process is quite straightforward — it promises to pay financial compensation to the beneficiaries or the loved ones of the policyholder. 

What is Life Insurance and How Does it Work? 

It is a legal contract between an individual (policyholder) and an insurance company (insurer). Under this agreement, the insurer pays a death benefit to the beneficiaries in case the policyholder dies. That’s essentially how life insurance works

To ensur the death benefit for their family, a policyholder needs to pay a specific amount called ‘premiums’. A beneficiary can only avail of all the life insurance benefits if all the premiums have been paid. 

How Does Life Insurance Work? 

Generally, a life insurance policy has two main components — premiums and death benefits. 

You, as a policyholder, pay premiums to ensure a large sum amount for your family. You will need to select a nominee or beneficiary to receive the death benefit from the life insurance company if you pass away in the policy tenure. 

However, considering that no amount is given if the insured is alive at the end of the policy term, many among us wonder ‘how do life insurance policies work if you don’t die during the term?’

How Does Life Insurance Work If You Don’t Die?

With a plain term plan, the answer is straightforward — you don’t get anything and the policy ends.

However, with a life insurance plan with a savings component, you can enjoy maturity benefits when the policy term is over. This is because in most plans, a part of your premium is invested in equities, funds, or bonds to accumulate cash value over the years.

Important: The coverage and death benefit/maturity amount is calculated on the basis of the premiums of a chosen life insurance plan. As a policyholder, you can choose different life insurance plans combining different benefits that differ from insurer to insurer.  

Let’s Understand this with an Example 

Rashid buys a simple term life insurance policy of AED 500,000 sum assured for 20 years. He pays a monthly premium of AED 100 for 20 years. 

If he passes away during the tenure, the insurance company will provide AED 500,000 to the nominee/beneficiary. However, if he is alive at the end of the term, the life insurance policy expires. No payout will be provided. 

On the other hand, if Rashid had chosen a life insurance policy with a cash value component, he would have gotten maturity benefits at the end of the policy term. 

Note: Maturity benefit and cash value depend upon the type of life insurance policy you choose. 

How Does Cash Value Work in Life Insurance?

Many life coverage policies today offer more than just death benefits. If you're wondering ‘how do life insurance policies work with a cash value feature’, here's how —

In such policies, a portion of your premium goes into an investment or savings component known as cash value. Over time, this amount grows and can be accessed during your lifetime.

But what does life insurance do when it comes to using that cash value? You’ve got a few options —

1. Take a Loan Against the Cash Value

You can borrow money from the insurer using your cash value as collateral. You’ll need to repay it with a small interest amount. If not repaid, it may reduce your death benefit.

2. Withdraw from the Cash Value

If needed, you can withdraw money directly. However, doing so will reduce the life insurance payout for your beneficiaries.

3. Surrender the Policy

You can terminate the policy and receive the cash value minus any charges. But remember, doing this ends the life insurance coverage.

Important: When the insured passes away, the cash value typically goes back to the insurer. In such a case, only the death benefit is paid to the nominee, not both.

What is the Free Look Period in Life Insurance?

When you buy a life insurance policy, insurers offer a free look period, usually 10 to 15 days. This lets you go through the policy terms and decide whether it suits your needs.

If you’re unsure about life insurance — how does it work or feel the policy isn’t right, you can cancel it during this period and get a refund.

How Does the Life Insurance Claims Process Work?

One of the most common questions people ask is: how does life insurance work when it’s time to claim?

Here’s how the process unfolds —

1. Report the Death: The nominee contacts the insurer to notify them of the insured’s death
2. Submit Documents: The beneficiary must submit a claim form, death certificate, ID proof, and medical documents (if required)
3. Claim Review: Once the insurer verifies everything, they process the claim
4. Payout: The death benefit is paid out to the nominee, usually within a few weeks, unless further investigation is needed

You can submit a claim online, by phone, email, SMS, or even by visiting a branch. 

Pro Tip: Always check the claim settlement ratio of the insurer before buying a policy. It tells you how reliable they are in settling claims.

What are the Benefits of Life Insurance?

Having explored how do life insurance policies work, let’s take a look at the top benefits —

• Financial Security 

When the insured dies, their family faces financial difficulties. This can affect their children’s education, daily expenses, and much more.

Life insurance doesn’t eliminate the family's grief but at least provides relief in terms of finances. Securing the family in the absence of the insured, it ensures that they can continue their lifestyle and fulfil their goals without worrying about expenses. 

• Long-Term Savings 

As we saw in the life insurance process, you can find many types of life plans that help you grow your wealth. You can use the accumulated cash value for various purposes such as buying a home, car, education, marriage, and more.

• Income for Retirement

Many retirement plans allow you to secure your post-retirement days. Besides providing death benefits, they also give you an additional income source. 

• Coverage for Critical Illnesses

Many plans regarding life insurance in UAE have a critical illness add-on. With this rider, the insured gets a lump sum amount if they contract any critical disease such as cancer, stroke, and so on. 

• Peace of Mind 

With the death benefits of a life plan, you can plan for unforeseen situations and protect your loved ones amidst the most unfortunate circumstances. 

Factors Affecting Life Insurance Premium Costs

While we now know how does term life insurance work, it’s also important to be aware of the factors that impact your premiums —

• Age
• Health and pre-existing conditions
• Alcohol and tobacco consumption 
• Family medical background 
• Lifestyle 
• Policy tenure 
• Sum assured 

Wrapping Up: Life Insurance — How Does It Work for You?

Now that you know how life insurance works, choosing the right policy becomes easier. Whether you're wondering what is life insurance and how does it work, or just want to understand how do life policies work with savings, remember —

• Term life insurance offers pure protection
• Policies with cash value combine savings with insurance
• The claim process is straightforward if documents are in place

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