What is term insurance?
Term insurance is a simple and affordable type of life insurance. Which provides you with life cover for a number of years. The cover amount, term, and premium amount are fixed at the start of the policy. The term period is selected by you but typically is within the range of between 10 and 35 years. Ideally, the policy should run until your expected retirement age. But can also be considered to coincide with the cessation of any financial liabilities you might have.
You may also hear the description “Term Assurance”. This is the same product: however, life policies are often referred to as assurances as they cover a known event, ie. death. Which is assured or guaranteed to happen one day whereas insurances cover unknown events that may or may not occur.
How does term life insurance work?
The policyholder pays a fixed sum monthly for a certain period of time, and the insurance company agrees to pay the sum assured (the cover amount specified) to the nominated beneficiary in the event of the policyholder’s death during the specified policy term. The cover runs until the premature death or end of the term. Whichever comes soonest, as long as the premiums are paid. If you stop paying the premiums, the life cover ceases after a certain grace period.
Some leading insurance companies in the UAE now offer a term life insurance policy with a return of premium. Under these plans, the policyholder is eligible to receive a percentage of premiums back as a maturity benefit. Generally, however, Term Insurances have no monetary or investment elements: they are protection products only.
Why should you include life insurance in your financial plan?
Life insurance in the UAE is affordable and offers numerous benefits. Especially, if you have or are starting a family, or if you run your own business:
- Life insurance policy plans provide financial protection and will cover any outstanding debts in the event of your death. Debts such as mortgages, credit cards, or loans may become the responsibility of your spouse or parents, leaving them with an unwanted financial burden.
- Term life insurance provides financial security, especially if your family depends on your income for their livelihood. A life insurance policy will ensure that your spouse, children, parents, or other family members are able to sustain their standard of living from the sum assured paid out in the event of your premature death.
- Term insurance is the cheapest form of life cover and suits most budgets. Sums assured are nominated by you so you can select a level of cover that corresponds to your budgeted monthly premium.
- Life insurance safeguards your business concerns, with policies tailored specifically for business owners. These can include options for the surviving business partner to acquire their deceased partner’s business share.
Why should you buy Term Insurance?
Life insurance comes in many different forms, such as endowment plans, unit-linked plans, and money-back plans. Term insurance is the most cost-effective and offers significant coverage at an affordable rate.
Term insurance plans in the UAE offer flexibility in terms of when to pay premiums. This can be monthly, quarterly, half-yearly, or yearly. You can also modify your term plan with optional additional coverage to increase your benefits. Such as critical illness, disability, or accidental death cover, and some Insurers offer the chance to convert your plan to an endowment policy should you wish.
Term insurance is worth investing in at a young age, as being young and healthy provides the highest insurability and best price.
Because term life insurance is easily available at a low premium. You can still afford to also invest in other financial goals. Life insurance policy plans often provide global protection, and the claim proceeds are tax-exempt in many countries.