How Much Life Insurance Policy Do You Need in UAE?

By Krunal Gandhi
  | Published: 26 October 2021

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Buying life insurance can be an extra aid for your family, but deciding the amount of your life insurance proves to be a difficult question. The amount of life insurance depends on many factors like daily expenses, your current financial condition, your debts, and the number of members in your family. There are many life insurance policies in the market and you might get confused about which one to go for. Please do not worry! By the time you reach the end of the article, you will have a clear idea about how much life insurance you need.

Covid-19 has unveiled the fragility of the economic system. The pandemic led to an enormous economic shrinkage. Under such circumstances, it is important to have a reliable financial backup that can aid you and your loved ones. However, deciding the amount of insurance can prove to be a baffling task. It is nearly impossible to decide how much insurance should adequately cover your loved ones. While answering this question, it is important to calculate how much insurance coverage you need, keeping in mind your family’s needs. It’s hard to compute how much life insurance you need for your family, but you can use an online calculator to have a rough estimate of your total life insurance coverage.

How to Calculate An Approximate Amount of Life Insurance?

Life Insurance Thumb Rule

Generally, it is considered that the life insurance amount should be 15-20 times the annual income of the policyholder. But according to some industry experts, the total amount insured should completely depend on the age of the policy seeker. People under the age of 40 must have life insurance that covers around 20 times their annual salary. Working professionals who are above 40 should buy insurance that covers around 10-20 times their annual salary. People who have reached the age of 50 should cover approximately 5-10 times their annual salary. This is just a rough estimate of the total amount you should insure. However, before buying life insurance, one should also consider family expenses, debts, etc. alongside the annual income.

The DIME method

The DIME formula urges you to do deeper research on your finances. DIME refers to debt, income, mortgage, and education. These are the four areas that you should consider while computing your life coverage needs. 

  • Debt - You must add up all of your debts like a car loan, credit cards other than your home loan. You must also add funeral expenses for you and your family while calculating life insurance expenses. 
  • Income - You have to decide for how long your family would require your financial support and then multiply that number with your annual salary. 
  • Mortgage - You might have bought a new home on a mortgage. Estimate the sum you need to pay off your home loan. 
  • Education - Your children will go to schools and colleges in the future to study. Calculate the expense of sending your children to school and college. 

By adding these commitments together, you get a significantly more balanced perspective on your requirements. However, this formula doesn’t account for the savings you already have. 

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Factors to Consider While Estimating Your Total Life Insurance

There are many factors to consider apart from annual income that can influence your choice of life insurance plans. These factors are listed below: 

Family’s monthly expenses

It is generally suggested to cover at least 10-15 times of the family’s annual expenses. It won’t be wrong to say that when it comes to calculating the expenses of the family, you should never be ignoring inflation. Your family expenses will rise in the span of the next 5 years at a rate of 7% per annum. So you have to calculate your total life insurance accordingly. However, it is suggested that you should renew your insurance policy every 5 years as lots of expenses might add up during that period.

Educational expenses

In case you have children, you’ll need to factor in the expense of a college degree in your life insurance sum, as paying educational costs can be perhaps the greatest cost of your children’s career. A college degree apart from tuition fees gives rise to other expenses as well like hostel fees and much more.

As indicated by a College Board, the normal educational cost at a college went up by a huge percentage as compared to the last decade. So, it’s better to discuss to get the right amount of coverage for college expenses.

Debt

The toughest spot one can leave their family in is with a heap of liabilities. Debt can be in the form of a home loan, car loan, educational loan, credit card bills, etc. So it’s better to calculate your life insurance accordingly so that your family doesn’t have to face any bad consequences.

Spouse’s future

When searching for a life insurance plan, do try to pick a policy that will sufficiently cover your husband’s/wife’s expenses. Your life insurance policy should be planned in a way that should ensure to fulfil all your spouse’s needs. It is your responsibility to cover all her requirements so that she can live a life of comfort. Everyday expenses, medical costs are some of the things that you need to consider and take care of. If you have no children, then it is suggested to opt for Rs 1 crore life insurance policy, but if you have children, then you must choose a policy with higher coverage.

Affordable policy

We have discussed various life insurance policies in the market. But what’s more important is that you should be able to afford a policy. You should be able to pay a monthly premium to keep it going. If you fail to do so, then the policy won’t be at all useful. If you have selected an expensive life insurance policy, then you will have to pay higher monthly premiums too. 

Personal wealth

Before, we discussed considering liabilities like loans and money you owe to different people while computing life insurance sums. On the opposite side of your monetary record is the wealth that you have accumulated throughout the long term. This wealth can be used by your family upon your death. These incorporate most of your investments like provident funds, mutual funds, etc. At the time of your death, these investments can provide instant help to your family.

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Tips for Ascertaining How Much Life Insurance You Want 

Remember these tips as you estimate your total insurance cover: 

  • Consider life insurance a part of your big financial scheme. This arrangement should consider future costs; for example, school costs and the future development of your resources. 
  • Try not to hold back. Your pay probably will ascend throughout the long term, thus will your costs. While you can’t precisely calculate how much both of these will expand, ensure that your spouse and children can keep up with their way of life. 
  • Discuss with your family. What amount of cash does your life partner figure the family would have to continue without you? Do your evaluations sound good to them? It is important to discuss all the areas with your family because only they can help you with the perfect estimate of their requirements.
  • Think about purchasing various smaller policies rather than one big policy. For example, you could purchase a 35-year insurance policy for your spouse until your retirement and a 20-year life insurance policy for your children until they pass out from college.

Your age and your wealth are significant determinants while computing your total life insurance needs. If you are someone with children, who has debts and high monthly costs, then you should look for a plan which can compensate for all of your family’s needs. Assuming you are in your 20s and single, your life coverage necessity isn’t so high. In case you are in your 50s and have invested a lot of money, and your kids are married and working, then again your total life insurance coverage won’t be excessively high.

Assessing insurance needs is not rocket science but should assist you with understanding your future needs and current position regarding offering monetary benefits to your family. Presently, you can’t foresee everything, so it is a smart thing to assess your life insurance needs at regular intervals.

How can Policybazaar.ae help you?

Using our premium and insurance calculator, you can estimate your affordability and determine how much life insurance will be able to offer you the best cover as per your needs. Besides, you can visit our life insurance webpage and fill the e-form to find personalized quotes for the best life insurance policies in the UAE in less than a minute.

Krunal Gandhi
Krunal Gandhi0 Post

Hi there, myself Krunal Gandhi. I have five years of experience in the content industry and have worked in diverse fields such as sports, technology and education. I'm a sports enthusiast who loves watching Cricket and Tennis. I also like to watch web series and movies having good content – after all, 'Content is King' and it's applicable everywhere.