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Should I Buy Life Insurance? Assessing the Value of Life Insurance

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Life insurance is an essential component of a comprehensive financial plan. It provides peace of mind, knowing that one’s loved ones will be financially secure if they were to pass away.

However, when considering life insurance, it's crucial to determine if the potential for paying premiums for years is worth it. This article explores the different types of life insurance, the pros and cons of each one, and whether buying life insurance online in Dubai is a smart investment for your specific financial goals.

Understanding the Types of Life Insurance

Before delving into the investment aspect, it's important to understand the two main types of life insurance: permanent and term.

Term life insurance provides coverage for a specified period, typically 10, 20, or 30 years. During this period, if the insured individual passes away, their beneficiaries receive a death benefit.

Permanent life insurance, on the other hand, offers lifelong coverage as long as you keep paying the premiums. It may also include an investment component that allows policyholders to accumulate a cash value over time.

Pros and Cons of Permanent Life Insurance

Permanent life insurance is often promoted as an investment due to its tax-deferred growth, lifetime coverage, ability to borrow against the cash value, and accelerated benefits.

However, these benefits can often be obtained through other means without incurring high management expenses and agent commissions. While these plans are certainly beneficial in terms of financial protection and investment in one place, their potential downsides include considerably higher premiums, tax implications, and reduced death benefits due to loans or accelerated benefits.

Pros and Cons of Term Life Insurance

Term life insurance offers several advantages that make it an attractive choice for many individuals.

One major benefit of term insurance is lower premiums compared to permanent life insurance. Since term policies cover a specific period, typically when financial obligations are at their highest (such as mortgage payments or supporting dependent children), the premiums are more affordable. This allows you to allocate the saved funds towards other investments or financial goals.

Another advantage of term life insurance is flexibility. You can choose the duration of coverage that aligns with your specific needs. If you anticipate that your financial obligations will decrease over time, such as children becoming financially independent or paying off your mortgage, you can select a term that reflects those changes. This flexibility allows you to have predictability in estimating your premiums and coverage duration.

Comparing Examples - Buying Life Insurance Online

Analysing some examples can certainly shed light on the potential returns of each type of policy. A non-smoking 30-year-old woman paying premiums for a 20-year term policy would have paid relatively low premiums and provided significant financial protection. In contrast, a whole life insurance policy for the same woman would have required much higher premiums, with the cash value accumulation potentially falling short of other investment options.

Consider a non-smoking 30-year-old woman in excellent health who purchases a 20-year term life policy with an AED 1 million death benefit - the plan would cost her around AED 425 per year. If this woman were to pass away at age 49, after paying premiums for 19 years, her beneficiaries would receive AED 1 million, while she would have paid only AED 8,075 in premiums.

Note: The premiums are for informational purposes only. Actual premiums may vary as per your profile and other factors. 

Is Life Insurance a Smart Investment? Should I Buy Life Insurance?

Determining whether term insurance is a smart investment requires careful consideration of your financial goals and circumstances.

For individuals with lower incomes, buying term life insurance and investing the difference in premiums in other investment vehicles, such as retirement accounts or brokerage accounts, can lead to better financial outcomes. The lower premiums of term life insurance allow for greater flexibility in allocating funds towards investment opportunities that can yield higher returns over the long term.

However, life insurance can be beneficial in certain cases as well. A major benefit of this type of plan is that you can enjoy the convenience of having both your insurance and investment requirements settled in one place only!

The Right Timing: Personal and Financial Considerations

The ideal time to buy life insurance varies from person to person, depending on their family and financial circumstances. If you're interested in a permanent insurance policy with a cash value, you would be required to own it for a sufficient duration for the cash value account to grow.

On the other hand, if you opt for a term life policy, you would need to remember that it’d be in effect only for a specific number of years and doesn't include a cash value component. The optimal timing for purchasing a policy, thus, may differ.

Why Starting Younger is Usually Better?

When it comes to timing, purchasing life insurance at a younger age is typically more affordable. Younger individuals qualify for lower premiums, while older individuals may encounter health issues that increase insurance costs or even disqualify them from obtaining coverage.

However, many young people postpone buying life insurance due to other financial obligations, such as mortgages, car payments, or student loan debts. While paying off these debts is important, neglecting life insurance can have significant economic consequences - pretty similar to delaying retirement savings. The sooner you purchase life insurance, the better.

Determining Your Need for Life Insurance

In certain cases, you may think that you don’t require life insurance if you don't plan on having dependents, getting a mortgage, or if your assets are sufficient to settle your estate upon your death. However, if any of these circumstances might be in your future, it would always be beneficial to obtain life insurance even before an apparent need arises.

It's important to consider that the timing of your life insurance purchase determines the balance between paying lower premiums for an extended period as a younger policyholder or facing higher premiums by starting a policy later in life.

Choosing the Right Time for Term Insurance

Term life insurance, as we saw earlier, provides coverage for a specific term. While a younger age is generally better, the start of the term should also align with when you anticipate others depending on your income. The policy's term should last as long as your dependents require your financial support. For parents, this often means until their children have grown up.

Couples who jointly own property may want coverage until their mortgage is fully paid. If both partners contribute financially to the family, each should have their own coverage. Even non-earning parents should consider life insurance since their unpaid labour, such as childcare, may require replacement with paid services in the event of their death.

Life insurance can also be prudent for individuals without dependents but with unsecured debts like credit card balances or private student loans. Credit card companies typically require all outstanding balances to be settled upon the death of the cardholder.

The Cost of Waiting

Delaying the purchase of term insurance at a young age can be costly. For instance, the average cost of a 20-year level term policy with an AED 250,000 face amount would be around AED 205 per year for a healthy 25-year-old male. In contrast, a 45-year-old male would pay approximately AED 421 per year. Waiting 20 years to buy the policy would result in an additional cost of approximately AED 4,320 over the life of the policy.

Note: The mentioned premiums are for informational purposes only. Actual premiums may vary as per your profile and other factors.

Moreover, waiting to buy term insurance can have a more significant impact on your ability to obtain coverage. As individuals grow older, the likelihood of developing medical conditions increases. If a serious medical condition arises, the insurance underwriter may rate the policy, leading to higher premiums or possible rejection of the application.

When is the Best Time to Get Life Insurance?

Generally, the younger and healthier you are, the lower the cost of a life insurance policy will be. If you're considering starting a family, it's wise to purchase life insurance at that time or even a few years before to make it more affordable in the long run.

  • Term Insurance for Parents - For parents, term insurance provides crucial financial support in the event of an untimely death. The death benefit should be sufficient to cover existing debts, replace your income for the years that your children depend on you, and potentially fund expenses like a college education.
  • Timing Your Purchase of Term Life Insurance - Term life insurance is often the more cost-effective option when you only need coverage for a limited number of years rather than your entire life. If you have dependents or debts or are simply considering these responsibilities, it may be an opportune time to acquire term insurance. However, if you want long coverage or insurance with investment, it’s always a good idea to start as early as possible.
  • Term Insurance for Children - Life insurance policies can be taken for children soon after they are born. Purchasing a permanent term insurance policy for a young child will result in much lower premiums compared to adulthood. Once the child reaches 18 years of age, the policy can be transferred to them, ensuring continued coverage.
  • Life Insurance for Young and Single Individuals - Whether you should buy term insurance while you are young and single depends on your expectations of starting a family in the future. If you anticipate having dependents, it's beneficial to purchase insurance at a younger age when it's more affordable. Term insurance can also serve purposes such as estate planning, charitable giving, or fulfilling debts and obligations upon death - regardless of your marital status.

Where Can I Buy Life Insurance?

Term insurance plays a vital role in securing the financial well-being of your loved ones. To make informed decisions about life insurance, it's crucial to understand the different types available and their respective advantages and disadvantages.

For all this, you can simply continue on Policybazaarinsurance.ae and head to the ‘life insurance’ or ‘term insurance’ section. The best part about this platform is that you get to compare the best life insurance and term insurance policies from different providers in one place.

Selecting the right life insurance policy requires careful consideration of your financial goals, priorities, and risk tolerance, and we can certainly help you get there!

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