The DO's and DON'Ts While Buying Life Insurance Policy in UAE

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  | Published: 16 January 2021 | Last Updated On: 08 February 2021

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Just like we contemplate carefully before buying anything, buying a life insurance policy also requires a great deal of calibration. As soon as you have decided that you want to buy a life insurance cover so that the future of your family is secured in the event of your unfortunate demise, it is vital to pick the right policy amongst the many available in the market. Many buyers often feel that their choice is not meeting their requirements, proving to be inadequate. Some feel like they are paying exorbitantly high premiums, drawing their finances in the process. Zeroing in on the policy that is best suited to meet your needs amidst a sea of options available can be a confusing task. But you need to make the right decision based on your budget, needs, and lifestyle in order to safeguard your future alongside your family’s. While buying a life insurance policy, the buyers must be careful of the pitfalls so that you make the right choice.

We have attempted to narrow down the DOs and DON’Ts of buying a life insurance policy in UAE so as to rid you of some of the confusion of picking the right policy:

The DOs when buying Life Insurance:

Mentioned below are some of the tips you should keep in mind before buying any life insurance plan:

1. Read the Terms and Conditions:

While people often spend hours planning a party to its last detail, they often go ahead and pick a life insurance plan without reading the fine print. Not only is buying a life insurance plan one of the most important purchases of your life, but it is also a way of safeguarding your life along with your family’s. Life insurance is a way of making sure that one does not lose out on a constant source of income in troubled times as well as providing financial support to achieve the dreams of you and your family. The terms and conditions of a life insurance policy provide you with a lot of significant information:

  • The charges, fees as well as other applicable costs that are imposed over the duration of the plan are mentioned in detail
  • The exclusions, limitations, and the scope of the life insurance plan
  • Conditions that restrict the insurance provider from processing the claim
  • The rights and the responsibilities of the insured

We would suggest you to not only read each clause of these terms and conditions carefully but also take a printout of digitally store this information for future references. Ignoring these details can negatively impact you and your dependents in times of need. 

In case you have difficulty in understanding the clauses mentioned, you should discuss these details with your agent. Don’t hesitate to clarify your doubts as it is a matter of life and death, literally. 

Knowing the implications of your life insurance policy clearly before buying it allows you to make a better choice but more importantly, it prevents you from dealing with unnecessary hassle later when you try to make a claim.

2. Choose wisely between your three basic options:

There are three types of life insurance policies-

Whole Life Insurance: This type of life insurance policy pays a lump sum amount when the insured is dead. Compared to the other types of life insurance plans, this policy is slightly expensive. 

Term Life Insurance: As opposed to the whole life insurance plan, the insurer needs to pay the premiums only for a specified “term.” These policies are generally not as expensive as the whole life insurance policies.

Decreasing Term Life Insurance: This policy pays out a lump sum amount only if the insured dies during the term of the policy. This amount however decreases as the life insurance policy matures. This type of life insurance is more affordable than its counterparts.

3. Choose the option of waiver of premium:

Make sure that your life insurance policy is more secure by opting for the option of a waiver of premiums. This waiver allows the policyholder to continue to get coverage when he/she is unable to pay the premiums regularly due to an unforeseen mishap. Thus, ask your insurance provider whether you are eligible for one or not when you apply for an insurance policy.

4. Link your insurance to your mortgage: 

In case you want to opt for a life insurance policy keeping in mind that your family can continue to afford the payments of the mortgage even after you are gone, then choosing a life insurance plan after considering the type of mortgage you have is best. Now, it is possible to have a mortgage and life insurance in one package.

A level term life insurance plan does not decrease its lump sum amount over a period of time. So if you have an interest-only mortgage contract, this policy makes the most sense.

On the contrary, decreasing life insurance cover is a better option if you have a standard repayment mortgage contract. The two work well alongside each other as the payout of the policy, just like the outstanding repayment amount on your mortgage decreases over time.

5. Make a choice between single and joint life insurance policy:

If your partner wants to buy a life insurance policy as well, then you are faced with two options-

A joint life insurance plan is appealing because it is cheaper. However, they are so because they payout only once. This means that in the unfortunate event of the death of one partner, the other partner is the beneficiary of the payout. However, there no longer exists a future cover.

A separate life insurance plan on the contrary is expensive. Separate policies for both you and your partner obviously cost more. But these policies can be customizable and hence provide a flexible cover on the basis of the individual’s needs and requirements.

Make an informed decision regarding this after carefully evaluating the pros and cons of both types of plans.

The DON’Ts when buying Life Insurance:

Here are some things you must avoid before buying a life insurance policy-

1. Do not buy inadequate insurance cover:

A lot of people don’t realize but they are underinsured because they bought a life insurance plan without carefully accessing their protection needs. Thus, buying life insurance involves an attentive calculation of the amount of coverage one needs. This cover will depend on a number of factors like age, net income, financial goals for the future, the inflation rate among others.

A life insurance plan should be able to provide a significant amount of income to the dependents. It should be a pillar of support when it comes to the financial needs of your loved ones, taking care of the education of the kids, etc.

Knowing the amount of coverage will also help you make a choice between term, endowment, or whole life insurance plans, easing the process of buying a life insurance policy.

2. Do not skip a critical illness cover: 

In the modern world, life expectancy has increased all over the world. Death due to illness can be avoided thanks to advancements in the field of medical sciences. People have more access to health care facilities, thereby contributing further to the increased global life expectancy rates. Terrible diseases like cancer, HIV/AIDS, organ failure, cardiac arrest among many more, no longer threaten the lives of people. But the exuberant hospitalization and treatment charges definitely wreak havoc on the bank accounts of the individual.

Opting for a critical illness cover can help ease this overwhelming burden on a person’s finances. The insurance provider will offer to pay a lump sum amount of money upon diagnosis of a disease if you choose a critical illness cover when applying for a life insurance policy.

Usually, the critical illness claims are higher than death claims, proving the absolute importance of adding this to your life insurance cover.

3. Do not misrepresent information on your application form:

Purchasing a life insurance plan often involves quite a lot of paperwork. As a result of this abundant paperwork people often end up filling inaccurate information, sometimes consciously and at other times simply by mistake. While insurance providers in the UAE are quite trustworthy when it comes to claim settlement, but in the event that a non-genuine piece of information is uncovered, companies will not provide the settlement money. These cases come under wilful non-disclosure of information or fraudulent intent.

Therefore, it is absolutely necessary for applicants to fully disclose all the information on the application form, be it your medical history, or the fact that you are a smoker. Doing this will ensure that the claim settlement procedure is hassle free and smooth.

4. Do not forget an annual review of your life insurance policy:

Life changes as time passes by and thus, reviewing your life insurance plan annually is a must. From minor changes like postal address or contact information, to major alterations like adding an additional cover to your existing life insurance plan, a review will make sure that your plan is up to date. Revisit your life insurance policy to ensure that all your basic information, your desired beneficiaries as well the coverage is according to your current circumstances and needs.

5. Do not spend too much on life insurance:

Opting for the most suitable life insurance plan is a very important aspect of your financial planning. One needs to have a holistic overview of all their needs before buying a plan. Ideally it is advised that one must not spend more than five percent of your total income on buying a life insurance cover. Spending beyond this limit will reduce your overall disposable income, putting a strain on your finances. It will also dampen your savings as well as investment plans. Therefore, it is important that your life insurance plan should be in accordance with your overall financial goals and should not stand in its way.

In a Nutshell

We hope that this list of DOs and DON’Ts help disperse the clouds of confusion that often take over a person’s mind when they decide to buy life insurance for the first time. Yes, the process of purchasing a life cover can be definitely stressful and confusing, but never shy away from seeking help from a financial expert if you find yourself bewildered.