There is an old adage, which first appeared in a book by a British novelist, of hoping for the best while preparing for the worst. It’s a sensible strategy but it is not one that many people in the UAE seem to want to adopt, if the level of life insurance and critical illness cover in the country is any indication.
Having a plan in place to protect your family if you were to suddenly fall ill or die is something that a lot of people either do not want to think about or, at the least, prefer to put off for another day. The picture is changing, but there is still a long way to go.
The life insurance market has been growing strongly in the past few years. According to the Insurance Authority, which regulates the sector in the UAE, the total value of life insurance premiums rose from 4 billion dirhams ($1.1 billion) in 2010 to 8.6 billion dirhams by 2014. That outstripped the expansion of the wider insurance sector. While the total value of insurance premiums grew by 6-11 per cent a year from 2012 to 2014, the increase for the life insurance sector was between 18 and 27 per cent.
Even so, at that rate of progress it will still be many years before the UAE population can be thought to have good coverage. Recent research by Zurich International Life found that 64 per cent of UAE residents don’t have life insurance to protect their family in the event of the primary salary earner dying, including 60 per cent of people with children.
The level of cover that is in place varies widely between different groups. Asian expatriates are in the best position, albeit with just 50 per cent of them having life insurance. Western expats are similar, with 45 per cent of them having cover. However, among Arab expats the rate is 18 per cent and among Emirati nationals it is just 11 per cent.
In addition, many of those who do have a policy have only limited protection. According to the Zurich survey, two thirds of those with life insurance have a policy which only covers up to two years’ worth of their annual salary.
There is a similar picture in terms of critical illness and disability cover. This type of policy pays out either a lump sum or a regular income if the policyholder is diagnosed with a serious medical condition or becomes permanently disabled. According to the Zurich survey, 30 per cent of Western expats have such cover in place, but the figure falls to 22 per cent of Emirati nationals, 20 per cent of Asian expats and just 17 per cent of Arab expats.
These levels of cover are worryingly low, but industry experts say that there are at least signs that things are moving in the right direction.
“There is a serious lack of awareness on the need for financial planning,” says Salim Khishen, Product Head, Wealth Management of Abu Dhabi Commercial Bank. “People are often adverse to protection, but more and more people are beginning to understand the importance of protection and the concept of life insurance.”
There is a mixture of interweaving factors behind the low levels of life insurance cover. Some expat workers may have a policy in their home countries which means they are already covered. Other workers may be concerned about the lack of shariah-compliant policies. Still others may feel it is a cost that they either cannot afford, or one that they are willing to forego in the hope that it will not be needed.
The cost of a policy can be a hard thing to pin down, as it depends on myriad factors that vary from person to person, based on their occupation, age, gender, medical history, their hobbies and other lifestyle factors such as whether or not they smoke. The fewer the risk factors and the younger the person is when they take out the policy, the cheaper the premiums will be.
The cost also hinges on the level of cover that a person is seeking. There are two main policy options. The more comprehensive and more expensive option is ‘whole of life’ cover. This will typically cover a policy owner up to the age of 95 and will accumulate a cash value over the course of the policy. A cheaper option is ‘term life’ insurance, which offers cover for a fixed period and can be useful as security for, say, a mortgage.
Different providers will offer variations on these main policy types. ADCB, for example, offers policies including term and whole of life protection solutions from renowned international providers aimed at the needs of different customers.
While some people may well find the cost of even the simplest term life policy too onerous, for most people it ought to be both affordable and a prudent decision.
“Everyone needs to take out life insurance to provide for the unpredictability of life and ensure they have a plan in place for long-term sickness, injury or death,” says Salim Khishen of ADCB. “No-one should feel exempt from this moral responsibility no matter what life stage they are in. All it takes is factoring approximately two to five per cent of one’s income towards the cost of insurance, which is very reasonable for the benefits one is getting.”
For those who still feel that it is something they can afford to ignore, it is worth asking a few questions. What would your family do in the event of your death or falling critically ill or if you had an accident that meant that you were no longer able to work? Would your surviving family members be able to pay for things like the mortgage or house rent or the school fees? Such questions can be unpalatable and the chances of anything going that badly wrong may seem remote, but that is not a good reason to ignore them.
This is a sponsored article written for Abu Dhabi Commercial Bank
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