Five factors to consider when choosing a life insurance plan

Under the current environment, the need for life insurance has been heightened. The increase in one’s ability to contract a deadly disease is causing people to rethink their insurance requirements. This evolution is quite significant especially in countries where life insurance penetration remained low so far.

Specifically in the UAE, with primarily expat population, the value of having emergency money set aside to cover issues such as medications, Covid-19 testing and purchasing necessities, or the loss of a family member is a lot higher.

There is an increasing awareness of the need to have some protection available to help manage such emergencies in a proper manner.

With social distancing and growing online interaction, customers now have easier access to online products and information, enabling them to choose and purchase insurance with a simple click of a button. With many options available, it is important to know some of the factors to consider while picking an ideal product that caters to one’s unique requirements.

1. Understand your and your family’s risk given specific situation
This refers to the ability to choose an insurance plan as per your risk profile and exposure. It is typically based on your age, family situation, health conditions, income, as well as products already purchased. It is imperative to strike a balance between different risks and choose the best option available.

2. Specify your actual need
Understand the actual reason for buying an insurance – this will help you make the right decision about not just the insurance itself, but also the kind of benefits to look out for. Reasons can vary from needing a cover against death, illnesses, disability etc. It can also be to simply ensure you have enough money set aside for retirement expenses or any other anticipated expenses.

3. Identify any specific life goal
As a matter of fact, you could be saving money to cover for your future goals, and aspirations, or even those of family members who are dependent on you and/or immediately protecting yourself or your family against adverse events through an insurance protection. You should be factoring in children’s education, marriage-related costs, buying or protecting new assets, accumulating wealth and retiring comfortably but this is not exhaustive.

4. Calculate the tenure of the product
Once you have identified how much coverage you need, you should gauge until which age you would want to pay for it. This can be based on a number of factors, including the amount of earning years you have in hand, or the amount of time available to achieve your goals. The tenure of the product should not be too less or too long – with the former there is the risk of the product expiring before you fulfill your goals, while with the latter there is the risk of paying additional premiums. It is very important that the horizon of the product you buy to be aligned with your time expectations.

5. Understand different options, compare and pick
Once you have meticulously evaluated all your requirements, you need to decide on which is the right life insurance product for you. Take your time to compare all the available options. There are products that provide life insurance cover with or without a maturity value at the end of the plan. Some others can be paired with additional benefits by paying extra premiums: you can add specific riders to your protection plan to cover additional benefits – life critical illness, disability, accidental cover etc.

These riders can help mitigate financial risk in case of an unfortunate event. There are also plans for specific pre-existing conditions which otherwise might not be insurable in a normal protection plan.

The main life insurance product categories are as follows:

· Term Life: These products provide life insurance cover, without a saving component, and are primarily bought to provide insurance due to various uncertainties of life. These are commonly used to cover for family protection or loans. Interestingly, this cover can be bought over the short time to mitigate a temporary risk.

· Whole of Life Insurance: These hybrid products provide both a saving component and an insurance cover that continues until a later age, which could be around 95.

· Savings: These products may have a low insurance component and provide an avenue to invest in financial markets with liquidity options, across a chosen term. Bear in mind that your savings will always be subject to market risk and volatility. Even when you are offered “guaranteed” investment, please be mindful that you will always bear some credit risk in case your provider cannot meet their commitment to you, hence, the need to choose a reputable and sustainable provider.

Choosing a life insurance product is a life-long commitment and is a valuable investment for your future. The opposite can also be true; it can be very costly if your needs are not fully covered.

Assess where you are at, where you’d like to be, weigh all the options available and make an informed decision through insurance companies or a registered insurance intermediary.

Emmanuel Deschamps is the head of Reinsurance, ERM, Actuarial, Data and Individual Life at Oman Insurance