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Some financial foresight never hurt anyone

Find yourself debating the need for good insurance cover because you don't have any dependants? The question to ask is, in the event of a tragedy, will you become a dependant yourself?

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A good life insurance contract is not meant to make you rich. It is only meant to replace a loss of income.

There is a strong possibility that many of you will brush aside what I'm going to talk about this month as "irrelevant and not required at my age." Isn't that the line the majority of us have used to turn down that eager life insurance agent out to sell us a policy? Fair enough. You are in the prime of your health now, so who can fault you for thinking that your employer's group life insurance cover should be good enough for you, especially if you don't have any dependants.

Let's face the facts first. Logic dictates that if we all had enough money to live the rest of our lives with our savings funding our current lifestyle, then we could all retire today. And for most people, the concept of a retirement age is at the point when their savings can fund the rest of their lives. However, most of us in our 20s, 30s, or even 40s haven't got to that point yet - what we earn is what we spend.

Also, to quash a myth, a life insurance contract is not meant to make you rich. It is only meant to replace a loss of income. The reasons you could lose your income are many. A good life insurance policy (with all its attachments) should be able to replace 75 per cent of your income either for a temporary period or permanently should you or your family lose your income due to premature death, disability, critical illness, etc.

The purpose of a good life insurance plan is just that. Nothing complex, nothing that's going to make you pots of money in the years to follow, nothing that's going to replace the need for a retirement plan or any other important financial need you may have, but simply just to replace a loss of income.

Now who among us feels so immortal that we know that we don't ever need to rely on a good insurance plan?I bought my first life insurance policy at the age of 23, not because there were people depending on my income. It was a more selfish need... if I had to lose my income at that age (or even now for that matter), it wouldn't be about my dependants, but more about who I would be dependent on. Don't get me wrong; the fact that I'm married and have a beautiful family to care for also makes me want to provide for them in the event that something happens to me now.

You will be surprised to know how common it is for younger people to lose their source of income due to an accident or illness or even premature death. It is not uncommon now for insurance companies to deny standard rates for potential clients due to their lifestyle, health or weight issues. It is nice to know that if there was something that went wrong with your financial plan due to unforeseen circumstances, you have the cushion of a ‘trust fund' to fall back on. In my column next month, I will tell you more about what you need to know about life insurance policies.

Rickson D'Souza is director of wealth management at Pinnacle Insurance Brokers, Dubai, Tel: 04-436-8888

Rickson D'Souza is a member of the Top of the Table at the Million Dollar Roundtable. This basically means he is among the top 1 per cent of financial advisers in the world.