Buying a life insurance policy is one of the first steps to Financial Freedom.
A pure term life insurance policy in UAE is the easiest way to protect your and the family’s financial interests. However, if badly executed, you could end up with a solution, that is inadequate and unsuitable to your needs. You could be lulled into a false sense of security which might prove fatal to all other plans you have made for your life.
I am enlisting a few of the common errors that most people make when buying a Life Insurance policy in UAE.
Hiding vital information or withholding facts can lead to the rejection of the policy. All the information regarding your age, health condition, dependants, lifestyle, previous policy details and claims must be provided diligently. These are also critical in filling up the application form as well as deciding the premium. Incorrect or incomplete information can be considered as breach of contract and could result in claims being denied.
2-Waiting for the right age
It is never too early to start planning for your finances. As far as insurance is concerned, the more your age, the higher will be the premium requirement. Also, you may start facing certain health conditions as you age which might make it difficult for you to get insured. Hence, don’t commit this mistake of waiting or thinking that you are too young to buy an insurance policy.
3-Exiting too early from the insurance plan
A lot of people view Insurance payments as an unnecessary expense. Whether it is a term insurance plan, a Whole of Life Insurance, or a Universal Life plan, you may be tempted to cancel the policy beforehand. Whether in the initial years or towards the maturity, exiting an insurance policy prematurely is always a bad decision. Sometimes we feel we are doing everything right; we are healthy and may have created enough cash reserves for ourselves. But an insurance policy is a guarantee of payment to your beneficiaries, that no other asset offers. Like Airbags in a car, no matter how expensive the car is itself, it’s a fail safe that you should always have in place.
4-Taking a policy with inadequate cover
The main goal of term insurance is to provide a financial coverage for the dependants of the deceased policyholder. However, if the insurance cover is inadequate, it won’t serve the purpose and also won’t be enough for the beneficiaries. As a commonly accepted standard, the sum assured must be at least 10x of the annual income of the policyholder. Though the requirement of every family is different, a large enough corpus will allow the living family member to plan the future without much stress.
5-Having too much Insurance
Just because life insurance is critical doesn’t mean that you need to go overboard with it. Buying too many life insurance policies just for the sake of it does no good without doing a thorough analysis of your needs, could actually be detrimental to your finances. Like in the earlier example, the airbags should definitely not cost more than the car itself. An insurance policy is not a wealth creation tool but is built to protect what you have and may need.
Read If you should buy life insurance as an investment here.
6-Selecting plans with lesser duration and lower covers
In order to lower their premiums, most people opt for shorter plans or lower amounts of coverage. This means plans which have lesser premium or have a shorter duration. What most people fail to understand is that such mistakes can cost more over the long run. For example, if a 25 year old buys a 10-year plan, then his plan will expire by the time he is 35. He would again have to buy a life insurance plan and this time he would have to pay a significantly higher premium. Plus, as you grow older, you could develop health conditions that could increase your premiums or result in denial of cover.
These life insurance mistakes can cost you a lot of money in UAE. The requirement may be different at each life stage of an individual, but life insurance is the foundation of any financial plan. So before you invest, learn to protect.
If you need help with choosing the right life insurance policy in UAE, contact us.