Dubai: If you have a financially stable company and are doing exceptionally well, redundancy may be the least of your worries. However, a lot of things can keep anyone from being able to work. A temporary or permanent disability due to accident or illness can suddenly strip a stable worker of his monthly income.
You're better off considering ways to protect your income. It's a vital part of financial planning because when income stops coming, everything else ceases. You won't be able to pay your bills, other financial obligations, savings plans or mortgages.
There are several insurance plans in the UAE that ensure you and your family will have some money to use in case the unfortunate happens. They come in names like income protection plans or critical illness, disability and life insurance.
"Income protection plans replace income lost through sickness or accident, but not through redundancy. They insure a percentage of your income which you decide upon, and pay the insured income amount until you retire, or die, or return to work," says Steve Gregory, managing partner of Holborn Assets, a financial advisory firm. The typical cost is about 2 per cent of the income amount insured. A $20,000 (Dh73,400) income per year might cost $400 per year to insure, but cost varies in line with age.
Prevalent lifestyle
Anand Majmudar, associate manager at Gargash Insurance, says life or disability insurance is important for employees in the UAE, considering the prevalent lifestyle of residents.
"Hazardous driving habits and unhealthy lifestyle, as well as lack of physical exercise, make it all the more important for every individual to have insurance in place," he says.
The disability insurance cover gives a lump sum to the insured or his family in case of disability or death. The amount of insurance can be decided by the policyholder at the time of the inception of the plan. There are also certain rider benefits like hospitalisation from certain providers which compensates client's 75 per cent of weekly income for a maximum of 365 days, with certain terms and conditions attached to it.
The cost of disability insurance can vary depending on the preferred lump sum, as well as age and lifestyle of the customer. For a $100,000 cover, a 30-year-old non-smoking male will pay $20 per month for 30 years. For a smoker of the same age, the same cover will normally cost more, at $25 per month.
However, Gurnos Stonuary of Nexus Group says life insurance is "arguably the most important" of all the policies you should look to secure.
"A solid and frequently underrated investment in its own right, life insurance offers a means of saving and earning money, with higher rates of return compared to standard savings accounts," he says.
"If push comes to shove, policies can be cashed in, normally after an agreed amount of time ranging from between five and 25 years."
And, if cash flow is an issue and you're unable to pay the premiums on your policy, you can talk to your broker or insurance company and take what is known as "contribution holiday" so you will not have to pay your premiums for an agreed period of time.
Life insurance can also guarantee other debts such as mortgage or bank loan, and assure creditors that you can pay.
Those who take credit cards from banks like Mashreq have the option to purchase life insurance to help the customer settle any outstanding on the card if the unfortunate happens. The bank, however, insists on customers to have mandatory life insurance to cover the outstanding loan amount on purchase of mortgage and personal loans.
