Insurance essentials & protection: Real-life stories of financial security and peace of mind

As an experienced financial planning and investment adviser, my mission has always been to guide in towards financial security. In this edition of “Mind Your Money,” we embark on a journey into the world of insurance. Our message remains steadfast: insurance is not just an expense; it’s a shield of protection that provides both financial security and profound peace of mind during life’s unexpected challenges. To make this message resonate, let’s explore real-life stories and case studies that vividly illustrate the importance of insurance.

First, let’s address the elephant in the room: the perception of life insurance as an expense. Many individuals, especially the young and healthy, often question its necessity. However, the unpredictability of life is a compelling reason to reconsider this stance. Here’s why life insurance should be a priority:

1. Debt management: Life insurance can be a lifeline for your loved ones when you’re no longer around. It ensures that your outstanding debts, such as loans, mortgages, and credit cards, are paid off, sparing your family from the burden of financial liabilities.

2. Income replacement: If you are the primary breadwinner or a significant contributor to your household’s income, your sudden absence can lead to a severe drop in your family’s standard of living. Life insurance steps in to replace your income, providing financial stability to your family.

3. Legacy building: If you have charitable causes or organisations close to your heart, life insurance can be a powerful tool to leave a lasting legacy. You can designate a portion of your policy proceeds as a donation or bequest to support these causes.

Choosing the right life insurance: Balancing your needs

Now, let’s address the question of how to choose the right type of life insurance. There are primarily two categories: term life insurance and permanent life insurance.

Term life insurance: Ideal for those needing coverage for a specific period (e.g., 10, 20, or 30 years). It pays a lump sum to beneficiaries if you pass away within the term. However, if you outlive the term, the policy expires without a payout. It’s cost-effective and suitable for temporary protection.

Permanent life insurance: Designed for lifelong coverage, as long as you pay the premiums. It pays out whenever you pass away and accumulates cash value over time. This cash value can be accessed through loans or withdrawals. Permanent life insurance is suitable for long-term protection and estate planning.

Avoiding common pitfalls: A few tips

To make the most of your life insurance, here are some pitfalls to avoid:

1. Under- or over-insuring: Striking the right balance is crucial. While it’s tempting to minimize premiums, you should ensure that your coverage aligns with your financial obligations and goals. Consider factors like age, health, family size, debts, and assets. (Ideal would be 10x-15x of net income)

2. Price-driven decisions: Don’t solely base your decision on premiums. Instead, evaluate policies based on their features, benefits, exclusions, fees, and the financial stability of the insurer. The reputation of the insurance company and the quality of service provided are equally important.

3. Lack of understanding: Read your policy carefully, ask questions if anything is unclear, and periodically review it to reflect changes in your circumstances. Be aware of critical policy aspects such as grace periods, surrender charges, and renewal options.

4. Skipping comparison: Shopping around is essential. Obtain quotes from different providers, utilizing online tools and seeking advice from licensed financial planners or advisors. Comparison ensures you get the best value for your investment.

5. Adviser reference check: It’s important to do a background check on your adviser. Simplest way would be to ask for academics, qualifications, certifications, and experience in dealing with clients in similar situation. Testimonies from clients would be a huge plus.

Insurance, at its core, is the guardian of your financial well-being. It’s that reassuring presence that ensures your financial security when life’s unexpected twists and turns threaten to disrupt your plans. But it’s more than that – insurance is a peacekeeper for your mental well-being, offering profound reassurance during turbulent times. Let’s look at some scenarios that are relatable!

Sandeep S. Jadwani — ACSI, CIB (Head of Investment Advisory, Habib Investment Limited – Regulated by DFSA) is a qualified, experienced and an award-winning financial adviser to high networth Individuals. He has been in the UAE for over 15 years and guiding individuals to efficiently and effectively manage their finances to achieve their financial goals. He believes financial fitness can ultimately lead to mental fitness.