Monday, Nov 12, 2012
People are not immune to economic difficulties, no matter their social standing. A catastrophic accident or disaster can send anyone to financial ruin and the best way to prepare before it happens is to consider insurance in financial planning.
Insurance is a tool designed to protect the financial well-being of an individual and ensure that if something goes wrong, it would make up for the expenses they would have to shoulder out of their pocket.
Here’s a quick look at some of the most common insurance products that you might be interested in buying:
Life insurance
What is it: Life insurance guarantees a sum of money that will be released to the family or dependents of the policy holder in the event of his death or after a set period. Some rider benefits can be added so that the policy holder gets financial cover in times of serious illness or disability.
Why do you need it: Life insurance can guarantee that the day-to-day living expenses of the family are taken care of when the breadwinner dies. It will also assure that “the kids’ education and aspirations are taken care of” and that there is enough money available in cases where the insured is diagnosed with a critical illness or is unable to work, says Anand Majmudar, associate manager at Gargash Insurance.
What to get from it: Cash payout that beneficiaries can use for funeral expenses, burial costs, medical bills, as well as college education for children. It can also create an inheritance for heirs and a source of savings for the surviving family.
Who needs it: Family breadwinners; people who have dependents; parents with young children; couples, and those who have debts or mortgages.
How much to insure: There is no single amount that applies to everyone. Your sum insured is dependent on your income, financial obligations or debts and the age of your dependents. A useful formula would be to multiply 70 per cent of your annual income by the number of years until your youngest child finishes full time education, then add to that number all your borrowings, advises Steve Gregory, managing partner at Holborn Assets. For someone who has a four-year-old child, earns $50,000 per year, has $40,000 debts and $80,000 mortgage, a minimum cover would be $820,000.
How much it costs: A little over Dh90 to Dh1,000 a month. For married beneficiaries with dependents, monthly premiums can be as low as Dh150 to Dh1,000, depending on the lifestyle, sum insured and age of the policyholder. Young singles without dependents can purchase a life insurance for as low as Dh93.16.
---------
Car insurance
What is it: Car insurance is a policy that promises a compensation in the event of unforeseen instances such as accidents or theft.
Why do you need it: Car insurance is mandatory for vehicle owners in the UAE. It ensures you have some money to dip into in case of an accident and the driver causes injury to another person, damage to another vehicle or public property. It provides protection to other people as well, including passengers and family members who may be riding with you or using your vehicle.
“The main benefits of car insurance is that it takes care of third party damage in terms of bodily injury or otherwise. If one opts for comprehensive insurance including driver and passenger, then it also covers bodily damage or other damage to your own car or passengers in your car,” explains Majmudar.
“Then there are additional covers which can cover you in neighboring country, as well as against calamities. You can also opt for a rent-a-car benefit in case your car has to be in the garage for several days for repair.”
What to get from it: Monetary compensation that can be used to pay for hospital bills, lost income, loss or damage to vehicle, as well as lawsuits and legal fees that may arise as a result of an accident. “The cover on third party property damage depends on the plan and the insurance provider which starts from Dh500,000 and can go up to Dh5 million. In case of death or bodily injury of the third party, the payment is in line with what the court decides. There is no such limit for it,” says Majmudar.
Who needs it: Anyone who drives/owns a vehicle
How much to insure: Choose a third-party liability cover of at least Dh2 million, advises Gregory. “Many policies cover as little as Dh100,000 for third party liability. That is not sufficient. In addition, consider a breakdown cover for passengers in your own vehicle,” says Gregory.
How much it costs: Depending on the vehicle make and type of cover, a car insurance can cost between Dh1,500 and Dh2,500 a year. A basic insurance for a Toyota car worth Dh40,000 can be insured for Dh1,559. This will cover third party liability, loss or damage to the insured car, fire and theft cover, personal injury cover of up to Dh20,000, among others.
-----------------
Home contents insurance
What is it: A home or contents insurance protects the insured against any financial losses that may be incurred due to a fire, theft, flood or any other disaster occurring in the rented apartment or villa.
Why do you need it: As a tenant, you’re not covered by the property insurance, so when you lose or damage your appliances, furniture, jewellery, cash and other valuables during a fire, you bear all the costs. With a home insurance, you have peace of mind knowing that if disaster strikes, you won’t be left penniless. A home insurance also includes third party liability. If you accidentally start a fire in your apartment and it spreads to another home and destroys someone else’s goods, your insurance will pay for any damage caused.
What to get from it: The payback is several times bigger than what an insured individual spends on annual premiums, ranging between Dh75,000 and Dh1 million. A standard cover, for example, can go up to Dh450,000 for contents and Dh75,000 for personal belongings.
Who needs it: Anyone renting an apartment or villa
How much to insure: Work out how much it would cost you to replace all the current contents as new at present rates. Also, your insurance provider should be able to suggest a figure after you’ve given them the details about your personal belongings or valuables. Bear in mind that you cannot insure some items and not others, because in the event of a claim of any kind, you will be discovered to be underinsured, advises Gregory.
How much it costs: Insurance plans can cost as little as Dh350 to Dh600 a year. The cost is generally dependent on the level of cover that a customer requires, both for the contents of the property and personal belongings.
---------------------------
Travel insurance
What is it: Travel insurance protects any traveler against adverse events during the trip such as flight cancellations, delays and hospitalisation.
Why do you need it: Most people travel with just enough money to cover the business and leisure expenses. They normally don’t set aside money for emergencies and when unforeseen events happen especially in a country where a traveler is not familiar with the language or bureaucracy, it can be difficult to find assistance. By having a travel insurance, a passenger is guaranteed that certain emergency financial needs will be taken care of wherever he goes.
What to get from it: Most travel insurance policies allow free international calls as well as cover bills, which soon mount up when you are trying to sort out an issue in a foreign country. Travellers can be reimbursed for expenses incurred during a flight delay and for lost, stolen or damaged personal items. They can get compensated if they have to cut their trip short due to illness, airline strikes, death of a family member or any other adverse situations.
Who needs it: Any traveler
How much to insure: The sum insured will depend on where you intend to travel to and what sort of coverage you want to get. For people travelling in Europe, Gregory suggests a $1 million emergency medical cover and $2 million emergency medical cover if you are visiting the United States or anywhere else in the world. For baggage and personal belongings that are lost or stolen, a $2,000 cover would be ideal. You might also want to include $2,000 cash cover for money lost or stolen.
How much it costs: A travel insurance policy can either be charged per day or a set period. A three-day policy may cost less than Dh100. A typical seven-day, 14-day and 30-day single-trip cover may cost about Dh125, Dh160 and Dh250 respectively from travel agencies in the UAE.
By Cleofe Maceda Senior Reporter
Gulf News 2012. All rights reserved.
