List goals before choosing life insurance

Question: I have read a number of articles recently in the newspapers regarding the need for life insurance policies and have become rather confused. There seem to be many different types, so how do I make the right choice? Furthermore, I own a valuable property back in my home country which could be sold to provide for my family in the event of my early demise, so why should I take out life insurance?

Answer: There is an old saying from the UK that goes: "There are only two certainties in life - death and taxes". As there are no personal taxes in this part of the world, that only leaves death as the most certain thing in life.

So life insurance is really a must if you want your family to be protected in the event of your death. However, working out how much money you need to insure against, and the duration of the policy, are less simple matters to decide on.

The first thing to do is to determine the main goals in life, for both yourself and your family, and then to place them in order of importance for all concerned. For most people, the first priority is the security of their family in the event of the early death of the husband, or wife (or even worse, both at the same time). At this point a discussion should take place among your family members to determine what you would want the family to do in the event of this sad scenario, including choice of country in which to live, desired standard of living, and type of accommodation preferred.

Income

Once this has been completed, you will then be in a position to decide upon the necessary income to meet these needs and to start choosing a life insurance policy.

This is the time to seek advice from an independent financial adviser. The second priority to think about is your children's education.

This needs to be discussed in detail with your financial adviser, such as the country you want your children to be educated in, and the type of university you wish them to attend. This will help determine the amount of money required to meet their schooling needs - allowing for inflation.

Property

A third priority may well be purchasing property either in your home country or elsewhere to ensure your family has a secure place to live in the event of your death, or as an asset that can be sold to generate cash.

However, if you sell the property you have to consider where your family would live instead, how long it would take to sell, what price it would sell for - remembering the current worldwide property situation - and whether going through a sale is something you want your family to have to go through while dealing with grief.

If your family retains the property then any outstanding mortgage repayments must be insured against. There may also be certain taxes levied by the country where your property is located, which must also be taken into account by your financial adviser.

The next step for your independent financial adviser is to add together the priorities outlined above and arrive at the total amount of money needed to ensure that each of these priorities is covered. By doing this your goals will be met in the event of your untimely demise.

Any savings, investments and other assets that you have accumulated throughout your life so far can then be deducted from the total amount, giving you the amount of life insurance cover needed.

It is at this stage that you can start discussing the type of life insurance policy and duration necessary to match your needs.

The writer is Chartered Insurance Broker, at Nexus Insurance Brokers LLC and views expressed here are the author's own and do not necessarily reflect the views of Gulf News. If you have any questions, please email advice@gulfnews.com.