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The Ultimate Do's and Don'ts of Life Insurance in UAE

By PolicyBazaar

Buy a term plan and secure your family

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As an expat in UAE, it is likely for you to have spotted the excitement in the life insurance sector in the UAE, due to multiple factors, one of them being the life insurance price. 

It is said that Dubai’s life insurance sector is rapidly growing at a rate of around 10% annually with as large as 60 competing insurers that all offer great life insurance price and deals to the insurance seekers. 

So, now that we have taken the wider picture into consideration, what about the minor details that will help you, as an expat, to ensure that you are able to lock in the best life insurance policy at the best life insurance price

Here are 5 of the Dos and Don’ts regarding the UAE insurance sector that you should keep in mind:

Do No.1 - Review The 3 Basic Options

 Generally, there are 3 main types of life insurance in the UAE: 

  1. Term Insurance: This type of life insurance pays out a lump sum amount to the beneficiaries if the policyholder passes away during the term of the policy. Premiums are paid for a fixed tenure and the term life insurance price is generally lower than the whole life insurance price.
  2. Whole Life Insurance: This kind of life insurance policy pays out the sum assured whenever policyholder passes away. The whole life insurance price is often higher. The premium payments generally go up to 95 years. 
  3. Decreasing Term: This type of life policy pays out the lump sum amount if the demise of the policyholder is within the term of the policy. The decreasing term life insurance price is generally lower than the other types as the lump sum amount decreases as the policy matures. The premium is paid for a fixed tenure.

Do No.2 - Consider Creating a Link Between Your Life Insurance and Mortgage

It is possible that you may be considering life insurance for the main reason of your family being able to afford your mortgage payments in an event of your untimely demise. In such a scenario, it is best to choose your life policy in line with the type of mortgage you have:

A decreasing term life insurance would be a good pick for you if you have a standard payment mortgage. This is because, under this policy, the payout reduces as the policy mature, just as the balance due on your mortgage payments.

A term life insurance is a good pick if you have an interest-only mortgage whose interest payments do not reduce the mortgage amount over time. Since the pay-out on this policy does not reduce with time, it can act as a breadwinner in case of an untimely demise

Do No.3 - Check Out Your Sum Assured

It is possible that you may be eligible for what is known as the ‘death in service’ benefit offered by your employer. This contribution amount is usually an amount of up to 4 times your salary.

If you meet the eligibility for this amount, you can make the necessary adjustments in your coverage requirement. This will help you save some money, as your coverage requirement will decrease.

Do No.4 - Cover Your Policy

You might have heard of the add-on benefit called ‘waiver of premium.’ It is a clause that can be added to your base policy and covers you against any inability that may arise in the future wherein you are unable to honor your premium payments. It could be due to illness, sickness, or accident. It is good to look out for this cover and how it can be added to your policy.

Do No.5 - Decide Between Joint and Single Insurance

If you have a partner, there is a choice at hand for you to make: Joint vs. Single Life Insurance Policy. 

The joint life insurance price is often cheaper. However, the catch is that they only pay out the sum assured once. So, in the event of an untimely demise of one of the partners, the other one is left with a payout but also with no future cover. If in this scenario, the surviving partner is in his or her senior years, this could be expensive for him or her.  

Single and separate life insurance plans are an alternative option for joint life plans. Holding two different policies can increase the overall life insurance price but at the same time, it also offers customized and hence, flexible coverage. 

It is best to speak to a professional to further understand how it works, and what is the best option for you.

Don’t No.1 - Don’t Cut Corners While Assessing Your Coverage Needs

The word coverage describes the amount of pay-out that you require from your life policy to pay for all that your family will need to sustain their current lifestyle. 

The policy seekers often tend to under-estimate the amount of policy cover required, but it is extremely important and therefore, there should not be any mistake. It is often a good idea to get help from a financial advisor when assessing the amount of coverage you need.

Don’t No.2 - Stop Smoking

Any sorts of smoking, be it vaping, e-cigarettes, cigars, etc. can end up doubling your insurance premium charges. It best for you to stop smoking for a period of at least 12 months and then you can present yourself in front of the insurance providers as a non-smoker.

Don’t No.3 - Don’t Disregard The Critical Illness Cover

The critical illness cover offers a lump sum payout in the event of a diagnosis of an illness that is covered under the contract. Generally, it includes heart attack, multiple sclerosis, and cancers, among many more. 

You are most likely to get a better deal out of adding the critical illness rider to your existing life insurance policy rather than opting for an independent policy for the same. 

Make sure you go through a proper comparison for the Critical Illness Cover. Also, assess your needs, if you are looking for coverage for some time in the future where you may be unable to work due to sickness, accidents, injury, etc. there are other options available in the market as well for both the long and the short term. 

It is also important to thoroughly check the fine print of the policy. There are numerous illnesses out there and it is extremely important to be sure of the exact ones for which you are putting your additional funds. Additionally, it is important to be aware of what the policy will aid you, to avoid any shocks in the future.

Don’t No.4 - Don’t Forget the Taxman

Many providers of life insurance policies in the market allow you to write your policy ‘in trust.’ This means that after your demise, your life insurance policy is not considered to be a part of your estate and therefore, this avoids any of the Inheritance Tax to be charged on the policy. It is extremely important to talk to a professional while evaluating this option as often there are many legal complexities involved that are extremely delicate in nature when it comes to the person that you are required to be legally involved with. It is best to go to an expert that you trust and know well in order to get the right guidance.

Don’t No.5 - Don’t Forget To Review Your Policy Every Year

As obvious as this is, people often tend to easily overlook this. However, it is extremely very important to annually review all of your financial products if you are an expat who wishes to stay on top and in complete control of personal finance. Life insurance policies are no different. The main reason being, you will be required to update your insurance provider accurately regarding the updated relevant changes in your lifestyle and living circumstances so that your policy remains valid and you do not face any problems in the future during claim settlement. 

With the dos and don’ts being laid out, it is important to remember that you should not see life insurance policies in isolation. Life insurance plans can be mixed and matched with all sorts of various different financial products in the market and strategized to your advantage.

Getting in touch with a professional, who works at the point where the financial markets and policies meet, can be very helpful when you wish to build a powerful and detailed life insurance package for yourself.