Buy a term plan and secure your family
Whole life insurance, another main type of life insurance, lets the policyholders accumulate cash value on the policy. On the other hand, term insurance does not involve cash value. However, in the case of whole life insurance, there are expensive management charges and agent fees involved, which are considered to be wastage of money by various financial advisors.
Whenever the financial advisors and insurance agents advocate the life coverage as an investment tool, they are actually talking about the “cash value” part of the permanent life coverage and the ways in which this money can be borrowed and invested.
Now, the underlying question is- When can life insurance prove to be one of the smart investment opportunities in UAE and when is it better to simply buy term insurance and invest the difference amount in other investment tools?
Let us go through some of the points in favour of permanent life insurance and the ways other investment tools compare.
One of the main benefits of permanent life insurance that makes it more desirable than term insurance is that you won’t lose the coverage after a certain period. A term insurance plan expires when you reach the end of the policy duration, which is generally 65-70 years for the policyholders.
However, if you live up to 120 years, then at that time who would require your death benefit? Chances are that the people, you would have actually bought the life coverage, for protection- your dependent parents, spouse, or children- are now self-sufficient or dead.
You may receive somewhere around 25-100% of the death benefit on your permanent life insurance plan before you pass away if you end up suffering from a specified condition like stroke, heart attack, end-stage renal failure or invasive cancer. The benefit of the accelerated benefit is that you can make use of them for paying the medical bills and probably enjoying a good lifestyle during the final months. The disadvantage is that your nominees will not be receiving the entire death benefit that you were expecting when bought the policy. Your health insurance, anyway, would offer sufficient coverage for the medical bills.
Moreover, some term plans also offer this benefit; hence, it is not just available with permanent life coverage. Some plans charge additional money for accelerated benefits also as if the premiums on the latter are not high enough already.
The money that you deposit in your savings account on which there is no need to pay commissions and fees, can be used for buying a house or paying for your children’s higher studies. However, the insurance agents emphasize on the point that if you invest your funds in a retirement plan and wish to withdraw it, you may have to pay some penalty. Moreover, some retirement plans may make it difficult (sometimes even impossible) to take out funds for these reasons.
That said, it is generally not a very good idea to have any confusion amongst your savings account and life insurance. Furthermore, when you borrow funds from your permanent insurance plan, an interest amount will get accrued until the repayment is made. If you pass away before paying off the loan, your heirs will get a lesser amount of death benefit. The outstanding loans can even lead to the lapse of the policy.
Over to You!
The only problem is that these benefits are not uniquely available with permanent life coverage. You can, more often than not, enjoy these benefits without having to pay high management fees and agent charges, which come with these insurance policies. Deciding whether life insurance for you is one of the effective investment opportunities in UAE, totally depends on your financial condition and planning. Whatever decision you take, make sure it is well-informed and well-analysed.