Short Term Disability Insurance - Short term disability insurance is a type of insurance plan designed to compensate for the lost income due to a disability
Buy a term plan and secure your family
This is the situation where a term insurance plan can make a considerable difference, despite the availability of wealth-creation alternatives such as real estate and equity investments. It helps in terms of financial stability or income protection.
A simple plain-vanilla term plan guarantees a considerable amount of payout in the case of the death of the policyholder during the tenure of the policy. Therefore, a person who is 30 years of age can safeguard the financial future of his family by obtaining a 30-year plan for a considerably high amount at an economical rate.
While the actual coverage is dependent on various factors, an individual can easily buy coverage running into millions of dirhams by making payment of annual premium of only a few tens of thousand bucks or less than that.
Moreover, the riders facilitate safety against critical illness and accidental death at a lower rate as opposed to customized health policies or critical illness covers.
An insurance plan that makes payment of a good amount to the surviving family members in the event of the demise of the breadwinner, may initially seem to be a good idea. But, a better examination shows various hidden risks and possible complications.
To begin with, the surviving members will have to either sell their house or make use of the insurance payout for settling the liabilities such as personal loans, credit cards, and home loans. The sale of a distressed home occurs invariably at a very low cost. Making repayment of the home loan from the insurance payout means that the survivors will be left with a very small amount for their future.
The next thing is investing the insurance payout in fixed-income low-risk investments that will earn negligible returns after taxation and inflation. The strategy with a higher risk will beat the main purpose of the term insurance plan. There is obviously the risk of one inappropriate decision causing disastrous results.
And finally, the payout of the plan must be sufficient for the present and the future requirement of the policyholder’s family. Furthermore, everybody knows that the expenses on the basic amenities have been rising constantly in recent years.
These days, a laptop or a personal computer with a decent internet connection has become an important study tool, which each student or working individual must possess.
In fact, a basic family sedan would cost you a few thousand dirhams and it usually becomes unsafe and cumbersome covering long-distances without having a vehicle.
The situation in which the family will have to compromise on the essential and basic things in life such as travel, food, education, or health will beat the whole idea of the financial plan. Obviously, the term plan an individual is investing in should consider all the facets and aspects mentioned above in order to provide complete mental peace to the family. Moreover, it provides for the prices of the basic products & services, which has been rising constantly.
The easiest solution for all the issues that have been described above is selecting a plan, which offers the double benefits of lump-sum payout as well as protection of income. As is clear by the name, this policy provides a partial payment of the death benefit in the event of the death of the policyholder. The balance amount is invested for generating a pre-decided fixed income that is to be paid to the surviving members for a tenure that ranges between 10 to 15 years.
One of the options includes receiving only a certain part of the sum assured or the cover amount in lump sum and investing the balance amount towards a fixed income on a monthly basis for a particular duration. Simply put, the family of the policyholders will continue to receive their income in the bank for that particular duration.
The alternative mentioned above (no matter how useful) does not take into consideration the factor of inflation and the inevitable rise in the income per month over a period of time. For those people who are looking for a rising income, they can select a plan where the payment of the maximum part of the sum assured is done in lump sum and the remaining amount is used for generating a fixed monthly salary, which will increase by a certain amount annually for the following few years.
In both of these cases, the surviving members receive a lump sum payment for taking care of the liabilities and immediate expenses. Then, they do not have to worry about investing this balance amount for taking care of their future expenses. The benefit of income protection will take care of this part by default.
Considering the eldest kid is born when the policyholder is 30 years old and he passes away when he was 40 years old, the surviving family members will get a fixed income every month until the time the kid is 25 years old. In financial terms, this means the policyholder will support his family till the time his child is capable of taking care of the family’s responsibility.
Obviously, a plan of this sort will offer certainty and stability, which will help the better half of the policyholder in settling into a stable career of his/her own.
Rather than treating your insurance as only a tax-saving tool or a quasi-mutual fund, you should concentrate on mitigation of risk and laying out a firm and efficient financial foundation for your entire family. Although it is impossible to predict the future, taking steps to secure it lies in our hands.