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IN UAE you can get Life Insurance in 2 forms; Term Life Insurance or Whole of Life Insurance What is Term Life Insurance?
Term Insurance policy is the simplest and the most affordable form of income and asset protection. It aims to provide an agreed cash lump sum, during the term of the plan in the event of death or diagnosis of one of the critical illness covered in the plan.
What is Whole of Life Insurance?
Whole of Life Insurance, as the name suggests, provides life cover for the whole life of the insured. In addition to life cover it also includes investment, which accumulates a cash value over the life of the plan. This cash value is one of the important elements of whole life insurance.
In UAE most whole of life polices are unit linked and they also offer the most important critical illness benefit for the whole of life of the insured.
Such policies were designed to address the short comings of a term insurance. The biggest challenge with term life insurance is that it offers cover for a fixed term, usually upto 70 years.
If the insured dies after the term ends, the beneficiary does not receive the death benefit nor does he get back the premiums paid; because the insured did not die during the term.
All the premiums paid into a term insurance plan are an expense and the money has no chance to comeback.
Term Insurance can be compared to a rented house, where you can live as long as you pay rent, if you stop paying rent, you can no longer can live in the house.
When you leave the house you do not get back the rent you have paid.
Whole of life plans can be compared to a own house on a mortgage, where you pay the mortgage for a certain period, once the mortgage is paid the property is yours.
When you sell the property you can expect to get more than what you have paid for it, similarly a whole of life plan pays out a cash surrender value, when you feel that you no longer need cover and surrender the plan.
Difference between Term Insurance and Whole of Life Insurance Cover Term
A whole of life plan aims to provide protection for the entire lifetime, while the term plan aims to provide protection for a specified period of time (e.g., 5, 10, 15, 20, or 30 years) at an affordable cost
Cash value accumulation
Whole of life plan accumulates a cash value, which can be withdrawn partially or fully. Term Insurance does not accumulate cash value, premium paid is written off as expense.(Like Car Insurance)
Flexibility
Whole of life plan is very flexible as the cover amount or premium can be increased or decreased and premium holidays are allowed.
The amount and the benefits are fixed throughout the life of the term assurance, no premium holidays are allowed.
Optional Riders
On a whole of life plan, living benefits like hospitalization cover, Long term care, Family Income Benefit, and dismemberment cover can be added as riders, along with Critical illness cover and Permanent Total disability, while critical Illness Cover and Permanent total Disability cover can be availed as riders on Term Assurance
Purpose
Whole of Life plan is used for long term insurance needs, like family protection or personal life cover. It is preferred by business owners / partners as Key Man Insurance to protect their business, as a retirement age for partners or owners cannot be defined.
Also preferred by young people, who are looking for a long term cover, to protect against loss of income due to death, disability and critical illness.
Used widely for estate planning, and by investors having multiple property investments and mortgage with terms more than 20 years
Term Insurance is typically used to cover mortgages, business loans, or time defined goals like children’s education or marriage, for a term less than 20 years.
It is highly recommended for people who are older than 40 years and want to supplement an existing, whole of life plan.
Market Fluctuations
The performance of a Whole of life plan is based on market linked investments, hence expert advice and regular review is required to obtain the desired results from a whole of life plan.
The Term insurance has no investment options, hence does not need a regular review to maintain the term assurance plan.
Options Available
The best whole of life products available in UAE are; Zurich International Life’s Futura, Metlife's Future Protect, and Salama's Hyat Plus.
Zurich international Life’s International Term Assurance, Friends Provident International’s International, Protector Middle East and Hemaya from Salama are some examples of good term insurance plans available in UAE.