Taking the Strategic Decision: How to Choose Between Term Insurance vs Life Insurance?

By Ruchi Gohri
  | Published: 26 October 2021 | Last Updated On: 01 December 2021

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Term Insurance in UAE
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The whole insurance industry runs on a single premise: the transfer of risk to the insurer. Unforeseen circumstances, personal mishaps, or economic downturns are all inevitable and stand as a cause of anxiety in the mind of the general class of people. Life insurance plans provide compensation to the kin or the family of the deceased, and hence it is a good way of insuring the future of the junior dependents in the family. There are several variations of the type of life insurance plan that may be provided by a company, and term insurance is one of them. The rule of thumb is that the policy coverage should be at least 10 times the annual income of the policy buyer, to secure a comfortable future for the dependents.  

Term insurance refers to a type of insurance wherein you pay the premiums for a pre-fixed tenor. The policy guarantees insurance against the demise of the policyholder only for a specific period. However, if the concerned individual outlives the period outlined in the policy, no return will be provided to the nominees or the policyholder. The term insurance plan may be of three types i.e. One-time Premium Payment, Partial Premium Payment, and Regular Premium Payment. In some cases, the insurance companies provide the option of a return of premium clause, which allows the buyer to receive the premiums that they paid while the policy term was active after the plan has run its course. The term insurance acts as a pure life cover, unlike other life insurance schemes, which allow the policy buyer to have a saving out of it. 

You may also like this - Should You Convert Term Insurance to Whole Life Insurance?

The term plan is attractive to a client because of its affordability and relatively simplified structure. In the case of a term plan, the only charge is for providing insurance whereas, in the case of other policies, there are several other charges such as the charge for allotting the premium, charge in case of surrender, investment, and payment to be made to commission agents. Due to the very nature of the term plan, in that it provides cover for a certain term, it is inherently more affordable than other life insurance policies – since the premium which is charged is relatively lower.

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A Unit Linked Insurance Plan is an insurance policy as well as an investment on part of the client. The policy mentions a death benefit – the amount that the nominee will receive in case of the passing away of the policyholder during the term of the ULIP. In the other case, if the policyholder outlives the term of the ULIP, they will get the matured value of the ULIP, by virtue of the value it has generated in investments in equity. 

Some of the term insurance plans which may be considered in the UAE are:

Insurance Company and Plans

Features and benefits

Zurich International Term Assurance

  • Provision of life cover if insured is diagnosed with terminal illness and there is an expectation of less than 12 months to live
  • Waiver of premium provision wherein premium will be waived in case of incapacitation for a period of at least 180 days due to injury or accident.
  •  

Hemaya Plus – Family Takaful Term Plan from Salama

  • It is slightly niche, since it is based on Sharia principles, and approved by Sharia boards in the countries where it operates.
  • Family Takaful Benefit provided in case of death or terminal illness.
  • The Critical Illness Benefit covers a list of diseases and provides insurance up to 1.25 million USD

Live Life from MetLife

  • Coverage of up to USD 5 million
  • The two options are - a decreasing term insurance with amortization rates 0%, 4%,6% or 8%; Level Term Insurance with maximum duration of 25 years

Friends Provident International's International Term Insurance Plan

  • USP is in its affordability, and it can be availed at a monthly premium of AED 64.50 or annual premium of AED 645
  • It has a range of 5 policies to offer - life cover, life cover with total or permanent impairment, life or early stage critical illness, standalone critical illness, decreasing term assurance

Lifeguard from Oman Insurance

  • USP is that it does not discriminate policy rates based on the consumption habits of the client. Hence, it is a good option for those who are prone to smoking tobacco. 
  • Has the level and decreasing term options.

In order to simplify this crucial decision for you, we provide for you a table of comparison below, listing the main features of term insurance versus life insurance policies in the UAE. 

Policy variable 

Term Insurance

Life Insurance

Premium amount

One of the cheapest options for insurance that is available.

Much more substantial amount has to be invested

Coverage available

Will provide coverage only in case of death before the end of policy duration. Not applicable in case of post-term death.

Premature death and maturity benefits are available. 

Death Benefit

Will be paid only for premature death.

Will be paid to the nominee in all possible scenarios.

Maturity Benefit

Does not apply.

Applicable depending on the terms and conditions of the life insurance company.

Flexibility

Comparatively less flexible.

Offers greater flexibility in the options to the client. Amount may be withdrawn for other purposes.

Term

Range of 10 to 35 years.

It ranges from 5 to 30 years.

Some questions to consider before taking the call:

Should You Convert Your Term Insurance Policy to Life Insurance?

This is doable but it depends on the policy provisions of the company. Conversion of a temporary policy into a permanent one will save the loss of money that was paid in all the instalments of the premium if the client outlives the term of the policy. However, what’s more important is the motivation behind taking such a decision. In most cases, the individual may have purchased the term insurance at a different stage in a different frame of mind. The primary motivation behind the choice may have been reluctance or inability to shell out more money that would have gone into the premium. With age and a change in circumstances, such as earning potential of the next generation, or multiplication of one's own savings, it may become advisable to convert your term plan into life insurance.  

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Should You Purchase Both Whole Life & Term Insurance Policies?

This decision is circumstantial. Also, it need not be a zero-sum game, i.e. the purchase of one does not necessarily foreclose the purchase of the other. For instance, a term policy makes more sense during the stages of struggle where one has to keep in consideration other practical concerns such as house rent, education loan, etc. However, in the long run, investment in life insurance does appear to be the desired long term goal. The life insurance premium acts as a legacy that the insured leaves behind for the good fortune of their next generation. They can rest assured in their mind while approaching their departure, that they have ensured the security of their wards and dependents in the future. 

You may also like this - Whole Life Insurance: Best Plans, Benefits & Eligibility
Ruchi Gohri
Ruchi Gohri

Senior Content Writer | She has a penchant for writing and with over 5 years of experience, she plays around with words elegantly, crafting simple content for all to read. In her free time, she loves her couch either to read or catch on to her sleep.