In their mid-thirties with two children, John and Jane approached me for financial planning and...
6 Crucial Life Insurance Mistakes to Avoid in UAE
Financial mistakes are not uncommon.
You may get away when you make some, but a mistake while buying Life Insurance can be unforgiving.
Unhappy Policy Holders
I meet many residents in UAE who are unhappy with their existing life insurance plans for one or more reasons.
Many feel that the plans they have bought are inadequate or they are paying a high premium, causing a strain on their finances. Some residents believe that they have been mis-sold a policy they did not intend to buy.
When buying life insurance, you must look out for certain pitfalls to ensure you buy the most suitable plan.
Here are Six Crucial Life Insurance Mistakes to Avoid when Buying A Policy in the UAE
Mistake No. 1: Buying insurance without reading the terms and conditions
Life insurance is one of the most important purchases of your life. It protects against loss of income and provides your family with financial security and the necessary funds to fulfill the dreams you had for them.
You can obtain the terms and conditions booklet written both in English and Arabic.
Please read and understand the scope and limitations of the policy, especially the exclusions, to make sure that you are buying the right one!
If you don't understand a particular clause, you must discuss it with your advisor. Clarify all your doubts to make sure that you fully understand the implications of the policy before buying it.
Knowing the implications of the policy not only helps you make a better buying decision but also eliminates the unnecessary hassles in the unfortunate event of a claim.
Mistake No 2: Hiding or misrepresenting facts on the application
Insurance companies in the UAE are efficient and trustworthy; they have a robust claim settlement process, which helps them pay legitimate claims quickly and without any hassles. However, they will not admit claims involving distortion of facts, willful non-disclosure, and fraudulent intention.
It is essential to fully disclose all material facts about your present health, medical & family history, and your lifestyle, at the time of application to avoid hassles/rejections at the time of claim.
For Eg: Many residents tend to classify themselves as non-smokers when they realize that there is a substantial difference between the premium rates of smokers and non-smokers.
Their excuse is that they occasionally smoke or they smoke Shisha once in a while. Insurance companies are very particular about the consumption of nicotine in any form(Shisha, cigarettes, Nicotine Gums, Patches, etc.)
Mistake No 3: Buying Inadequate life insurance
The first step when purchasing life insurance is calculating how much life coverage you need.
The amount of coverage depends on your age, your income, the number of dependents, their age, a logical assumption of future inflation, your financial goals, and Net-worth.
Your life insurance should ideally provide sufficient income to the surviving spouse/dependent for their whole life. It should also protect your critical financial goals like children's schooling & higher education etc.
Knowing how much coverage you need also helps you decide if Term Insurance, Endowment, or Whole Life Insurance will fit into your budget.
Mistake No 4: Not Buying Critical Illness Cover
"More than 50% of UAE residents do not have critical illness cover" - highlights a survey conducted last year by YouGov for FPI
Typically people confuse Critical Illness Insurance with Medical Insurance, but they both are not the same. Medical insurance aims to reimburse medical expenses.
Critical Illness Insurance is designed to mitigate the loss of income by paying the insured an agreed cash lump sum on the diagnosis of a major illness covered by the policy.
It helps the insured focus on recuperation instead of worrying about;
Rent / Mortgage
Children's school /University Fees
Loan Repayments, etc.,
Loss of Business Revenue, Profitability, and Capital
Mistake No 5: Spending too much on Life Insurance
Buying adequate life insurance is a small but crucial aspect of your financial plan. It is important to take a holistic view when purchasing life insurance.
Ideally, you should target to spend less than or equal to 5.00% of your income towards life & critical illness insurance.
Spending more than 5.00% will leave you with very less or no disposable income to save and invest for your future.
Your life insurance should complement your wealth accumulation process and not hinder it.
Mistake No 6: Not buying life and critical illness insurance for your spouse.
Many residents do not include their spouses when buying life and critical illness cover. They assume that it is enough to cover only the income-earning member.
Little do they realize that the financial impact of critical illness of home-maker is as good as the breadwinner.
Expat families in UAE are typically nuclear, and both partners play a significant role in running the family. It would be almost impossible for the breadwinner to focus on work and take care of children while supporting a critically ill spouse.
Claim proceeds of critical illness cover help the family stay strong and together without having to worry about income and bills.
Summary & Expert Help
The following are the six silly mistakes to avoid when buying critical illness cover in UAE;
Buying insurance without reading the terms and conditions
- Buying Inadequate Life Insurance
- Spending too much on Life Insurance
- Hiding or misrepresenting facts on the application
- Not buying critical illness cover
- Not buying life and critical illness cover for the non-working spouse.
As an expert and unbiased financial adviser, I can help you determine your protection needs and buy a suitable life and critical illness cover.
Schedule a free 15-minute discovery call to understand how we can work together in addressing your protection needs, and then we can take it from there.
Author, Blogger & Independent Financial Advisor. My goal is to give you actionable tools for creating passive income and building wealth. More than 10,000 expats have already used my ideas to jumpstart their journey towards financial independence. Connect with me to start yours...