One of the most important questions to consider when navigating the confusing field of life insurance is ‘how much life insurance do I need?’ It can be very tempting to take out a smaller policy. But, often, you’ll find that you actually need to take out far more coverage than you initially thought. On the face of it, a policy of 250,000 USD would seem like a lot of cover to take out. However, there are many reasons why taking a larger policy is a much wiser decision.
Why A Larger Policy?
When it comes to life insurance, less isn’t more. Conventional wisdom dictates that you should purchase ten times your annual income in life insurance. However, is this enough? While it might be enough for some people, many will find that this amount of cover will provide insufficient financial provisions for those they leave behind. According to Internations.org, the average cost of living for a family of four in Dubai is over 6000 USD per month. And the average cost of living in Abu Dhabi is only slightly lower, at just over 5500 USD per month. An additional concern for many expats living in the UAE is healthcare and school fees. In the UAE, it is compulsory to have health insurance. With basic cover for a family of four costing nearly 5000 USD a year, this can become a huge expense if you’re growing your family in the UAE. Expats must also pay for both public and private education in the UAE. While government schools are relatively affordable – only around 1600 USD a year – many expats will prefer to send their children to private or international schools. And, schooling like this can cost anywhere between 7000 and 12,000 USD a year.
With these basic statistics in mind, let’s look again at how much cover you might need to purchase. If you’re earning a good wage of 80,000 USD a year and using the conventional wisdom of purchasing ten times your wage in life insurance, you would purchase 800,000 USD in cover. Many would look at this amount and feel that it’s more than enough cover to provide for their families. But, as noted above, the average cost of living in the UAE is expensive. Taking the figures for Dubai as an example, in ten years this equates to an average of 720,000 USD. So, in the event of your death, you have exhausted your family’s cover in just over ten years. This doesn’t factor in other expensive situations, such as if your child wants to go to university outside of the UAE, for example in the US. This can be exorbitant – and impossible if your life insurance doesn’t extend far enough. Not purchasing enough cover can deprive your family of a quality of life, opportunities and a professional future.
So, when should you purchase cover? What cover should you get? And what factors increase your need for life insurance?
Buying Young and Buying Term Life Insurance.
If you’re young and of a normal level of health for your age, there’s no good reason to skimp on your life insurance. Buying young means life insurance will be relatively cheap. One of the best ways to go about purchasing a policy when you’re young is to buy term life insurance. This type of life insurance provides cover at a fixed rate for the agreed length of the term. Purchasing this type of coverage will maximise the value for money of your policy. And, term insurance is inexpensive and easy to purchase. Due to the inexpensive nature of term insurance, buying more than you think you need is a smart move. As your circumstances change and evolve, buying more term life insurance is also easy. So, as you get married or grow your family, making sure that you continue to have a policy that will take care of your family in the event of your death, is simple and inexpensive.
Your Financial Dependents.
Having any financial dependents means that life insurance is a must. And the more financial dependents you have, the more life insurance you’ll need. Taking out more cover can be a smart financial move if you plan on building a family. You’ll need to be able to guarantee that your partner can be provided for whilst still paying for the upbringing of your children. In the event of the worst-case scenario of your death, a continuity of lifestyle for your bereaved family is essential as adjusting to loss is difficult enough already. A larger policy can ensure this continuity of lifestyle for a long time. And, as we’ve seen, the cost of living for a family in the UAE can be larger than you expect. So, even a seemingly large policy can reveal itself to be insufficient once you realise how much your family might need with the absence of your continued income.
Assessing Your Situation.
As we’ve seen, your situation – or potential future situation – will make a huge difference to how much cover you should take out. It’s vital to assess your personal situation in order to have a clearer picture of your goals and needs in purchasing life insurance. In this regard, there’s no substitute for proper financial advice from an expert like IAE Insure. CEO Ian Featherstone says, ‘At IAE, we can assess your specific situation and help you to decide how much life insurance you should purchase, and of what type. We’re committed to ensuring not only continued financial support for your family in the event that the worst happens, but also ensuring your peace of mind in knowing that your family will be provided for no matter what’.