How will you take care of your family when you’re gone?
Do you know the difference between health and life insurance? I’ll let you in on a secret: they are both equally important to have in your portfolio.
We have already discussed the importance of choosing the right health insurance coverage while living abroad. Life insurance is not something you want to think about, but if something were to happen to you, you will want to ensure the safety and security of your family abroad.
A recent survey revealed that 48% of residents of the United Arab Emirates do not have life insurance, and Managing Director of Middle East and Africa at FPI, Marcus Gent, says that “most expats working in the UAE only have life and/or critical illness cover as part of their employee benefits package, which means they could be left unprotected if they leave their current employer”. It’s important to think outside of employee benefits and think of everyday life.
Sure, twenty-somethings with no dependants or responsibilities may not consider purchasing life insurance, but if you have a spouse and children to take care of it is an entirely different scenario.
What’s the difference between health and life insurance?
Health insurance covers the costs of medical treatment, depending on the sum assured. However, while this may cover most types of unexpected and serious illnesses, accidents, regular check-ups or medications, it does not cover your family (or dependants) in the event of your death. Life insurance, on the other hand, provides the policyholder’s beneficiaries with an income replacement for them to maintain their lifestyle upon the death of anyone considered to be financially responsible in a household.
In general terms, health insurance protects your finances (and offers access to better health care), while life insurance protects your family’s future. This is especially true for expats who have been relocated with their whole family.
Why you should consider life insurance
It pays to think beyond the basics like putting food on the table; funeral expenses, your children’s education, being able to pay off the mortgage so there is no need to sell the house to stay solvent and paying taxes are all important factors that allow your family to maintain their lifestyle.
Life insurance will secure your family’s future and will allow them to financially stay afloat. Sit down with a financial and insurance advisor and discuss the options. Sitting down with an advisor will also help you decide what items you want to cover: mortgage or college, for example.
Part of life insurance is to cover debts you didn’t pay off during your lifetime; some debts are automatically dischargeable upon death, however, others are transferred to the surviving spouses. The benefits provided by life insurance can help cover these debts, especially if the clauses read that upon death the debt must be paid fully, instead of in terms.
“I’m not the breadwinner”
Parents provide for their children in many ways: food, shelter, clothing, attention, help, amongst others. If you’re the stay-at-home-spouse and you pass away, your husband or wife will need to hire domestic help, someone to pick up the kids from school, help them with their homework or feed them while they are still at work. Hiring home care can be expensive, even more so if it is needed on a daily basis, so your life insurance will help cover that, especially if it is something you didn’t need to pay for before.
Whole life vs term insurance
Here is where it can get complicated. Should you buy whole life or term insurance and what is the difference between the two? Term life insurance means you can buy coverage for a specific period (from 1 up to 30 years, usually, depending on the policy and company you purchase from). This can be a relief when the need for protection is high for a specific reason. However, once the period is over, you are left unprotected.
Whole life, on the other hand, protects you your entire life. It is more expensive, but you will receive consistent coverage, regardless of your health status. Additionally, it guarantees cash value accumulation, which can then be borrowed as a loan if you need money for an emergency (say, medical expenses). The main difference is that term life premiums will be on the rise yearly, whereas whole life may seem expensive at first, but premiums will remain consistent throughout, regardless of age, health or any other circumstance.
It’s time to face reality
Joel Steele, co-owner of Steele Financial Solutions, put it very clearly: “Life insurance isn’t supposed to be about you. It’s about taking care of your responsibilities and your loved ones. You’re not a kid anymore. Your parents aren’t going to take care of this for you. You need to accept the responsibility as an adult and take care of your loved ones because no one else in the world will”. It may seem harsh, but it also rings true. It’s up to you to take care of the future of your family and make sure they are economically solvent after you are gone.
The key to all of this, in the end, is to purchase life insurance when you need it. If you’re 35 and enjoying a dependant-free life, then there really is little to no point in purchasing life insurance. So take a seat and decide whether it should be a priority in your life or not. Regardless of your situation, it’s something you should consider for your future self.
[Image: Sathyatripodi]