Think before you make changes

Q: I want to change the beneficiary of my life insurance policy. How easy is it to get it done? Also, should I consider changing my provider? A friend of mine said it can be financially beneficial.

A: You are dealing with two different, but mutually related issues, and I would suggest that you sit with a qualified adviser to ensure that you receive professional advice.

First, in terms of changing the beneficiary of your life insurance policy, that should be a relatively easy process. Once a policy has been issued and is in force, as the owner of the policy, you can make changes to the beneficiaries, unless the beneficiary has been designated as irrevocable.

The process is usually very straight-forward, with most insurance companies providing a simple form to fill in and submit. Your signing will need to be properly witnessed and you should check with your adviser whether you need to submit both Arabic and English versions.

However, if you are looking to change providers, this changes matters. The typical process for changing providers is to cancel the existing policy, and use the cash or surrender value to purchase a replacement policy.

Changing providers will enable you to name new beneficiaries, and could enable you to change the payment terms. However encashment of a life policy, especially in the early years, may well attract heavy surrender penalties.

It's worth remembering that your life insurance policy is part of your long-term financial planning. There are numerous reasons to consider changing policies, but short-term gain shouldn't be one.

Replacing or changing your insurance policy may affect your overall financial position, which could leave you with less resources later in life and may well be subject to surrender penalties.

Steps

So the first step is to consider your reasons for changing your policy. If it's just to change beneficiaries, this can usually be accomplished with your current provider.

However, if the needs of the people you are looking to look after have changed, then you might want to consider either changing the terms of your existing policy, or replacing it.

There are some pitfalls in the process that you should be aware of. If you do change providers, you might find that you are paying a higher premium for new insurance over the duration of the policy, because you are older now than when you first bought life insurance. Additionally there might have been a change in your health which can also have an impact on cost.

You should be aware that you might be able to convert your current policy to a newer product with the same insurance company without losing any accumulated cash value or altering your rights.

Even considering these factors, there can be advantages in changing your insurer. For example, your new company may be fin-ancially stronger than your previous provider.

The UAE market is benefiting from both the increasing capacity of local insurers as well as the entrance into the region of many of the leading international names in life insurance, so it might be worth considering "trading up".

In particular, you should ensure that you are insured with a provider who is licensed in the UAE.

Calculate

All of these calculations can be very complex, and it is in your interest - and those of your beneficiaries - to speak to someone with a real grasp of the issues involved and financial products available. An independent broker could provide you with a full range of options, and also talk you through the potential consequences.

Unless the friend who is advising you has the right qualifications and market knowledge, I'd strongly advise you to speak to a professional.

- The writer is sales and marketing director at Nexus, a leading regional financial adviser. The opinions expressed above are the writer's and don't necessarily represent the views of Gulf News.
Please send your questions to: advice@gulfnews.com.