Understanding term life insurance and why you need it – News

Residents of the United Arab Emirates have access to various national and international temporary insurance plans. But before choosing a term insurance policy, we need to understand a few things about it to make an informed decision.



By Joseph Terrance / POV

Published: Sun Oct 30, 2022 3:50 PM

Life can often be uncertain. And when the emergency hits, no one would want to leave their family behind or run from pillar to post to pay off their debts or worry about their children’s education.

To prepare for life’s uncertainties, every earning family member and people with dependents and responsibilities should have term insurance coverage to ensure their families remain financially secure in the unfortunate event. of premature death.

Residents of the United Arab Emirates have access to various national and international temporary insurance plans. But before choosing a term insurance policy, we need to understand a few things about it to make an informed decision.

What is term insurance?

Term insurance is a simple contract in which an insurance company pays a promised sum, say 1 million dirhams, to the family or an agent in the event of the death of the insured.

Essentially, a person takes out insurance coverage by paying a premium – the cost of taking out the policy – for a specified number of years, say 20 or 25 years. The person usually pays this amount each year to keep the policy in force.

In the unfortunate event of the person’s death before the policy expires, the death benefit will be paid to the beneficiary and the policy terminates. The premium depends on various factors. These include:

> Age of the insured. The younger the person, the lower the premium;

> Current state of health of the insured person;

> Your profession or your daily activities, for example, working in offshore platforms, the armed forces, etc.

> Sum insured, or the amount nominees receive on the death of the policyholder;

> Number of years the policy will cover the insured. The longer the term, the higher the premium;

> Lifestyle habits of the insured such as smoking or adventure sports. So if you regularly enjoy skydiving above The Palm or ziplining in Ras al Khaimah, the premium may be higher.

However, it should be noted that the term insurance payment is only made in the event of the death of the insured.

So why is it important?

Why term insurance

Term insurance offers the highest coverage at the lowest premium and is therefore the most sought-after plan if a person aims to protect the financial well-being of the family in the event of death or an unforeseen accident.

It is true that if a person survives the term insurance period, there is no payout, but the lower premium more than makes up for that.

When should I buy term insurance?

It is best to purchase term insurance at an early age, as premiums increase with age. One should take out term insurance right after getting a job or starting a business and certainly before you start investing in savings plans.

Taking out term insurance early creates a financial cushion for your parents, who are nearing retirement or are already retired. Also, closer to marriage, other term insurance is suggested to protect the financial well-being of your spouse or children. The duration of this insurance policy should be much longer.

How many?

The amount of coverage must be sufficient to cover all current liabilities, plus all possible family expenses up to the term of the policy and any additional emergency expenses they may face.

Also, remember to take inflation into account when calculating the sum insured.

Factors to keep in mind when deciding how much coverage to take out with term insurance include:

> Current annual family expenses;

> Any current liabilities such as a home loan;

> The rate at which annual expenses will increase bearing in mind the children’s tuition/college fees;

> Number of years it will take your children to be upright;

> Any additional amount you would like to provide your family for emergency expenses.

For how long?

The duration of the temporary plan should depend more on the age of the beneficiaries than of the insured. If the candidate is young as children, the term should last until he can manage financially. Likewise, if the applicants are your parents, you should consider their age and ensure that they are still supported.

What term insurance?

1. Basic or tiered insurance

The most popular of all term insurance policies, level term insurance provides fixed coverage at a predetermined premium. The sum insured and the premium remain the same for the duration of the policy. There is no payment except in the event of the death of the insured. Or unless you have purchased additional riders

2. Premium Refund Plan

Since some people are uncomfortable with the fact that they can outlive their term insurance policy, some insurers have introduced the premium refund plan. In this, if the insured survives the policy, the whole or part of the premium paid is returned to the person. Of course, the amount of the premium will be much higher than that of a fixed term insurance.

3. Increase Term Insurance

If a person expects the amount of coverage needed to increase in the future, it would be best to increase the term insurance. The amount of the guarantee will increase on dates fixed at the beginning of the contract. It helps cover inflation, children, etc., which can swell the amount your family might need in the future.

4. Decreasing term insurance

These are mainly used to protect against mortgages where the cover sum decreases every year according to an amortization schedule.

Riders

Term insurance offers several riders such as terminal illness, critical illness, permanent or partial disability, income benefit, waiver of premium and child support. Riders provide extra money in cases other than death, such as disability resulting from an accident.

It is a good idea to take these jumpers, because in such situations the family needs a lot of money to overcome the crisis. This will increase the premium, but it is better to be prepared for such situations.

Summary

Policy coverage, endorsements and conditions should reflect your lifestyle and health. For example, if you have a history of serious illnesses in your family, you must take the corresponding endorsement. And, if you like adventure sports, you should make sure that the terms and conditions of the insurance policy cover this aspect.

You can search for term insurance plans on www.policybazaar.ae and compare them as needed. Apart from the premium to coverage ratio, you can also analyze the endorsements provided by each and their cost. Our service agents will be available in case you need clarification or help in making a decision.

Joseph Terrance is a business unit manager at Life Insurance. The opinions expressed are his own and do not reflect the policy of the newspaper.

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