STEP 3
Protect the Downside
Protecting loss of income and assets is one of the most important steps, on the journey to Financial Independence.
Our income could stop temporarily or permanently due to various reasons, and when it does, it can have dreadful effects on an individual and his family.
Temporary loss of income could be because of a job loss, emergency back home, immigration to another country or return to home country, and this can be managed with the help of emergency savings.
This aspect is discussed in detail in chapter 5.
Permanent loss of income due to Death, Disability or Critical illness can create huge financial setbacks making it difficult for the individual and those dependent on his or her income.
We will discuss in detail, the solution to loss of income in the following sections;
Loss of income due to Death
Life Insurance is perhaps the simplest answer to a dreadful question; how will your family manage its finances, if you were to die today?
While no one wants to think about this subject, you really cannot avoid this if you have people, who are financially dependent on you.
There are many types of Life Insurance in UAE, the basic purpose of all type of plans is to provide lump sum cash to your family, in the event of your death, helping them secure their future.
Proceeds of Life Insurance are usually used to cover the following;
While you continue to strive to create a strong financial foundation for your family, your life insurance serves as a solid base of your financial pyramid, on which other investments like property, saving for education, retirement and liabilities like mortgage, car loan or personal loans can comfortably rest upon.
You should consider buying Life Insurance if; You are Single
While you are single you may not have a spouse or kids dependent on your income, you may have a moral obligation to support your parents or your younger siblings, who may not have started earning yet.
In the event of death, you would not want your parents or siblings to bear your debts if you have any.
While you are young and healthy, you can benefit from bigger insurance benefits at very low premiums, which continue to be low for the term of the insurance, allowing you to focus on other financial commitments as you grow older.
Newly Married
Marriage brings together two individuals who agree to share their happiness and sorrows along with the financial commitments of the family.
If both partners are working they plan their future based on joint incomes and may borrow to buy a cozy apartment, bigger car or a luxury holiday.
God forbid if one of the partners dies, the surviving spouse’s life is devastated due to grief and huge pressure of having to clear the debts on his / her own.
Married with Young Kids
Both spouses in many families in UAE earn to make ends meet, and if your family is one of them, both of you should consider buying life insurance at the earliest.
If one of you were to die, then the surviving spouse will be left with young children, half or less income to;
Even if you are the sole bread winner of your family, you must still consider insuring the life of both partners, as your spouse makes vital contributions like child care, cooking for the family, managing your house and other important chores.
In the event of his / her death, you would be left with young kids, and lesser time to manage the chores and earning a living.
Proceeds from a life insurance will help you to an extent to spend for a full time nanny, cook, maid, and enabling you to look for a job which may allow you to spend more time with your kids.
Single Parent
As a single parent, you play the roles of a father, mother, cook, friend, driver and many more.
You would be surprised to know that many single parents do not have life insurance, and even if they have, they do not have the adequate life insurance to address the financial needs of the children if they are no longer alive.
Married with Older Children
Your children may have finished college, and your commitments like mortgage might be paid up, you still need life insurance, to provide for your spouse, who may outlive you by 2030 years, thanks to the medical advancements.
If your savings are not adequate your surviving spouse may have a difficult time in maintaining the current lifestyle, or might have to be dependent on your children, who are about to start their own family.
You are retired
Many countries levy up to 40% as estate taxes, a life insurance plan can enable your heirs to claim their inheritance without having to sell the whole or the part of your estate.
In case you have not saved enough to leave a legacy, a life insurance plan is cost effective option to create a legacy to your heirs, and providing for your surviving spouse.
If you are a Business Owner or Partner
As a business owner or partner you are not only responsible to provide for your family, you are also responsible for the continuity of your business, in the event of your death, because many employees, co-owners and their families will also get affected financially if your business has to close down in case of your death.