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[INTERVIEW] What you need to know about life insurance in Dubai
Posted on Jul 17, 2015 by Rob McBroom
Maria Loughran, Corporate Account Manager at UMI/Pacific Prime answers common questions about life insurance in Dubai.
Life insurance, like health insurance, should be an essential part of any expat's insurance coverage. The thing is, life insurance in the UAE can be an extremely complicated matter that can cause confusion, especially if you have never purchased life insurance here before.
In an effort to shed some light on the world of life insurance, we sifted through all of the questions clients have asked us about life insurance and developed the top five queries expats in the region have been asking about life insurance. We then interviewed our resident life insurance expert, and Corporate Account Manager, Maria Loughran for her expert opinion and advice.
1) Is life insurance really something people in Dubai need?
Maria: Life assurance (another common name for life insurance) is the most basic form of insurance available, and it pays out a lump sum in the event of a person’s death. This is an important benefit for people regardless of where you live in the world, and particularly important if you have dependents, as in the event of your untimely death, you can leave behind some funds to help your dependents during what will surely be a very difficult time. Depending on the level of cover (sum assured) chosen, the lump sum can help with the cost of funeral expenses, children’s education, or paying off an outstanding Mortgage on the home.
2) What are the differences between Term Life Insurance, Whole of Life insurance and Critical Illness insurance?
Maria: Good question. I will start with Term Assurance, or Term Life Insurance.
This is the cheapest form of life assurance available in most markets. As its name suggests, this is an insurance policy that is written on a pre-determined term (or length of time) that is chosen at the outset of the policy e.g. Cover for 10, 20 or 30 years.
If no claim is made against the policy (e.g. the insured does not die) during this term, the policy cancels and no benefit is paid out. All of these plans, regardless of the provider, are priced based on the following four base criteria:
Age of the insured at the time the plan is "written" or sold.
Whether the insured is a smoker or non-smoker.
Health of the Individual (this is determined through a thorough full health declaration on the application form).
Country of Residence
When it comes to actually selling these plans, Term Assurance policies are often written on the following basis:
Single Life - This is where one person is insured for a set duration of time.
Joint Life First Death - Two lives covered under the policy, with the benefit being paid out on the death of the first life and the policy then ending.
Joint Life Second Death - Two lives covered under the policy, with the benefit being paid out on the death of the second life and the policy then ending.
Dual Life - Two lives are covered under the policy with potential double payout if both policyholders die within the term.
On top of the criteria and methods of writing, insurers will also normally offer three different types of this variety of life insurance:
Decreasing Term Assurance(Mortgage Protection) – The benefit (sum assured) decreases every year in line with a decreasing mortgage repayment.
Level Term Assurance – The benefit (sum assured) remains level throughout the term of the plan.
Convertible Term Assurance – The benefit can be extended (converted) to a new life assurance policy at the end of the term if no claim has been made.
Whole of Life Insurance
Whole of Life Insurance, as the name suggests, covers you for the ‘whole of your life’ so there is a guaranteed payout as the policy ceases on your death, or earlier if you decide to ‘cash in’ the benefit. It is the most expensive form of life insurance, and is normally the plan that would be taken out to cover an Inheritance Tax bill, for example.
A Whole of Life Insurance plan can be written on a single or joint life basis, and usually has an underlying investment fund where the premiums are invested. So, essentially, Whole of Life is a mixture between a savings plan and a protection policy. There are various types of Whole of Life policies, but the most common is the unit-linked whole-of-life policy.
With this type of policy, the insurance provider invests your premium in a fund that they manage and that is expected to grow at a certain rate over time. That being said, the fund value is not guaranteed. In some cases it may grow by enough to pay for your life insurance benefit throughout your life. In other cases, it may fall short of the amount that is needed to pay for your life insurance. In that case, you may have to pay a higher premium to keep the sum assured at the agreed level.
Critical Illness Cover
A Critical Illness, or Serious Illness policy, is a plan whereby a lump sum is paid out in the event of you contracting a very serious illness and surviving. Having a Critical Illness plan in place to cover you and your partner in case one of you becomes ill would mean that your loved ones would be looked after financially. Your partner would then be able to pay household bills, buy food and clothing, and maintain their standard of living without worry.
3) If a family was to choose only one plan among the ones mentioned above (Term Life, Whole of Life, and Critical Illness), which one would you recommend for them and why?
Maria: In my view, Critical Illness Cover is one of the most important protection plans for a family to have in place, as the chances of you contracting a serious illness and surviving before the age of 65 are far greater than you dying before this age. Clients need to ask themselves “Would my family survive if I became seriously ill or incapacitated and could not continue to work? Who would pay my mortgage and other household bills?”
The lump sum paid out in the event of you contracting a critical illness and surviving could be used to pay off an outstanding mortgage, for example. Removing this financial burden at a time when your focus should be on recuperating and giving you and your family some level of comfort and peace of mind can be a big help in the long run.
4) Are there plans offering a “cash back” option? In other words, plans that allow us to get the amount we have paid for term life back if we need to?
Maria: There are cash back plans available in some markets. These are called ROP, or Return on Premium policies. While they are available, these can be very expensive and are becoming less popular largely because of the high cost.
Even though something like a unit-linked Whole of Life policy allows you to build up a ‘cash’ lump sum over and above what is needed to pay for your life insurance, this usually only happens if the underlying fund performs much better than expected. You will generally find the policy will have little or no cash value at any time.
In my opinion, it is preferable to have a separate savings plan in addition to your life assurance policy. This is largely because there are so few funds that have consistently overperformed and resulted in long-term gains.
5) Is life insurance really necessary?
Maria: There is a very apt saying in the Life Assurance Industry that goes, ‘Life Insurance is sold, not bought.’ With human nature being what it is, we know that our clients would rather not think of the fact that they may, in the future, lose their health and become unable to work, or die prematurely and leave young families behind. Our role as an Independent Intermediary is to educate and impress on our clients the importance of life insurance policies. There are a suite of reasonably inexpensive products available that can provide a surprisingly high level of comfort to individuals and their families. Our advice is that you review your protection needs today and contact us if you have any questions. It might be one of the best decisions you will ever make.
Maria is a Corporate Account Manager with UMI in Dubai. Prior to joining the team, Maria held a number of management positions in two of Ireland’s leading life insurance companies, as well as a top International Health Insurer. Maria is a Qualified Financial Adviser and was a Life Assurance Industry spokesperson in Ireland prior to moving to Dubai. Maria’s previous roles include Life Assurance Technical Specialist for Canada Life, Life Assurance Product Manager for Aviva, and Broker Relationship Manager for Allianz Worldwide Care. Maria has built a career that has spanned over 18 years in both the domestic and global Insurance markets, and has gathered a wealth of knowledge and expertise in both the Life and Health Insurance disciplines.
Connect with her on LinkedIn.