When speaking to clients about their life insurance needs, the response I often get is ‘I don’t need that, my company provides life insurance for me’. This may indeed be true, but when asked about the level of cover in place, most people cannot give an answer.
Death in Service
The majority of employers in the region offer life insurance as part of an employee’s benefits package. This is usually called ‘death in service’ and will usually provide only two years basic salary should the worst happen.
This is important to know as many people do not realise that allowances such as housing and travel allowances will not be included in the payout.
To use an example, an individual could be earning a salary of AED40,000 per month with basic pay at AED25,000. There is a monthly travel allowance of AED5,000 and housing allowance of AED10,000 per month. The individual believes they are covered for two times salary, meaning AED960,000, whereas in reality, the actual cover will be AED600,000.
When taking into account the usual UAE living costs, such as annual school fees and rent or mortgage costs, this payout figure will not last for long.
There may also be additional clauses within these death in service policies that could see the payout reduced or even rejected completely. You may not be covered if you pass away as a result of a road traffic accident or if you out of the country at the time of death.
Company death in service is a useful benefit to have, but it should not be relied on exclusively to protect your family should the worst happen.
A personal life insurance policy should always be considered in addition to company death in service benefits.
Life insurance policies are a way of replacing your future income for your family. If you were to pass away, your family would no longer have access to your monthly salary and therefore could face real financial hardship. They may also be left with other financial burdens such as outstanding mortgage debts.
With a life insurance policy in place, the payout can be used to replace the income lost and also be used to pay off any outstanding debts.
How Much Cover is Required?
A minimum of 10 years worth of income is recommended by most financial advisors. However, it is often advisable to opt for a higher level of cover, to provide an income until your youngest child is financially dependent, or even to cover your family until your proposed retirement age.
Things to Remember
- The younger you are, the cheaper the cost of insurance. On average, cover doubles in cost every 7-8 years.
- Additional insurance can be added to the policy, such as covers to protect against critical illnesses and disability
- Insurance payouts can be taken as lump sum or regular income
- Always disclose any pre-existing medical conditions and smoker status, as non-disclosure could result in reduced payouts
If you would like to talk about any of the topics covered in this article, please contact me on the channels below.
LinkedIn: Chris Keeling DipFA CeSRE
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