Q: I am 35, running my own company in Dubai, and raising a family of four. I have decided to buy life insurance, but am unsure who I should approach, how much cover I need and what kind of policy best suits me. Please help.A: Life insurance is a cornerstone of any financial plan, and - since you have dependents to consider - you should try to have the right policy in place as quickly as possible.
The key role of life insurance is to ensure that your financial obligations are covered in the event of your death, so securing a policy should provide you with valuable peace of mind.
Although it is a question everybody asks, there is no quick and easy formula for determining how much insurance you need. Everybody's circumstances are different, and your needs are likely to be determined by a range of factors including your income, the specific needs of your family, debts and your family's lifestyle.
Try to determine the overall scope of the policy by calculating the two needs that your family will need to cover. You can break these into two areas: immediate cash needs and income needs.
Your family's immediate cash needs are likely to include expenses like funeral costs, any repatriation costs, hospital fees and so forth. You might also want to make sure there is an emergency fund to cover rent, school fees and the costs of covering any debts or liabilities.
Planning
The income needs will be determined by how much income your family will need to sustain their lifestyle, and how long the income will be required. You might look to cover the period until all your children reach 18 - and begin to become financially independent - or until your spouse retires.
Deciding the period will help determine the type of policy you require. Given your relatively young age, you might consider term insurance, which - as the name suggests - covers you for a specific period of time in the case of premature death. After that period, you can drop the policy or pay annually increasing premiums to continue the coverage.
The advantage of these policies is that they tend to be the less expensive than other alternatives, although they only pay a death benefit rather than accumulating a cash reserve.
Another alternative is whole life insurance, which is the more traditional approach. With whole life, the premiums stay the same over the life of the policy, which stays in effect until your death, even after you've paid all the premiums. Whole life premiums build up a cash reserve over the life of the policy.
You could also look into other types of permanent life insurance, such as universal life insurance and variable life insurance.
Deciding on a policy is generally easier with the assistance of a professional financial adviser. If possible, try to work with an independent adviser who isn't tied to a specific provider, since they will be able to offer unbiased advice and suggest the right policy to suit the needs of your family and your current budget.
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