I have recently given birth to my first child and realise there is a pressing need to get life insurance in place. But how much do my husband and I need to insure ourselves for, and what type of policy is best? I have heard about life insurance, which is just that, and those that act as a savings plan as well. We are both 35, both work and are fit and healthy, though my husband is a heavy smoker. So, what do you suggest? SF, Dubai
The expert advice:
Tim Denton, financial consultant at Abacus Financial Consultants
Dear SF, firstly congratulations on your new baby. You are quite right that you should review your family’s protection needs so that even if something dreadful were to happen to either of you, then at least the financial side of life would not be a worry. Here are the steps you need to take:
You should start with an analysis of your monthly income and expenditure (rent, loans, education and general bills), then consider the position if either one of you passed away, including the loss of that salary and any additional costs. This will give you both revised monthly shortfalls.
As you have a new child, it is likely that they will be financially dependent on you for the next 20 years, so the calculation should be the monthly shortfall x 12 (to annualise) x 20 (years of need). Any existing insurance can offset this to give you the final figures. Regarding your husband, smokers are covered but the premium will be higher.
When considering the most suitable policy for you, you should take into account the size and reputation of the insurer (you want to be sure that they will be there in 20 years time and will pay claims promptly) and also that the policy will cover you in other countries if you move.
You mention life insurance policies bundled with savings and pure life insurance policies. When looking at your family’s protection needs, stick to a straight life policy, as you can see exactly what you are paying for and what you get.
If you combine this with a savings policy then you may well have to compromise between your saving and protection needs. The charges are less transparent and the savings are lost when there is a life claim. With separate policies, the life cover will pay out and you will still have the savings.
Critical illness cover is important, as a critical illness may stop you from working and the life cover will not pay out as you are still alive. This should be set at two to three years of expense cover (by which time you hopefully will have recovered, or passed away and the life cover will have paid out).
A good adviser will always be willing to help you work through this.
The reader’s advice:
John Fernandez, Abu Dhabi
Reading your question made me sit up and think. I have two young children, and until now, my wife and I have not put any life insurance in place. Part of this is laziness – it’s just something we’ve never got around to. What makes our situation worse is that my wife doesn’t work, so if anything did happen to me she might struggle. However, I did do some investigation into this issue a while back and my biggest concern at the time was the monthly premium. As someone over 45 with a number of health conditions, it was going to cost a lot to insure my life and the family finances are always on the tight side. Instead, I have added the monthly amount I would have paid for life cover to my savings. By trying to build up a sizeable emergency fund, I’m hoping that will negate the need for life insurance in the first place. I may be wrong, but I also hope my wife never has to find out if I am or not.
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