Insurance essentials & protection: Real-life stories of financial security and peace of mind

Life insurance is an integral part of financial planning, offering security and peace of mind

By Sandeep S. Jadwani

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Life insurance is not just another expense but a wise investment in your family’s financial security.

Published: Mon 11 Sep 2023, 3:46 PM

Last updated: Sat 30 Sep 2023, 10:44 AM

As an experienced financial planning and investment adviser, my mission has always been to guide in towards financial security. In this edition of “Mind Your Money,” we embark on a journey into the world of insurance. Our message remains steadfast: insurance is not just an expense; it’s a shield of protection that provides both financial security and profound peace of mind during life’s unexpected challenges. To make this message resonate, let’s explore real-life stories and case studies that vividly illustrate the importance of insurance.

First, let’s address the elephant in the room: the perception of life insurance as an expense. Many individuals, especially the young and healthy, often question its necessity. However, the unpredictability of life is a compelling reason to reconsider this stance. Here’s why life insurance should be a priority:

1. Debt management: Life insurance can be a lifeline for your loved ones when you’re no longer around. It ensures that your outstanding debts, such as loans, mortgages, and credit cards, are paid off, sparing your family from the burden of financial liabilities.

2. Income replacement: If you are the primary breadwinner or a significant contributor to your household’s income, your sudden absence can lead to a severe drop in your family’s standard of living. Life insurance steps in to replace your income, providing financial stability to your family.

3. Legacy building: If you have charitable causes or organisations close to your heart, life insurance can be a powerful tool to leave a lasting legacy. You can designate a portion of your policy proceeds as a donation or bequest to support these causes.

Choosing the right life insurance: Balancing your needs

Now, let’s address the question of how to choose the right type of life insurance. There are primarily two categories: term life insurance and permanent life insurance.

Term life insurance: Ideal for those needing coverage for a specific period (e.g., 10, 20, or 30 years). It pays a lump sum to beneficiaries if you pass away within the term. However, if you outlive the term, the policy expires without a payout. It’s cost-effective and suitable for temporary protection.

Permanent life insurance: Designed for lifelong coverage, as long as you pay the premiums. It pays out whenever you pass away and accumulates cash value over time. This cash value can be accessed through loans or withdrawals. Permanent life insurance is suitable for long-term protection and estate planning.

Avoiding common pitfalls: A few tips

To make the most of your life insurance, here are some pitfalls to avoid:

1. Under- or over-insuring: Striking the right balance is crucial. While it’s tempting to minimize premiums, you should ensure that your coverage aligns with your financial obligations and goals. Consider factors like age, health, family size, debts, and assets. (Ideal would be 10x-15x of net income)

2. Price-driven decisions: Don’t solely base your decision on premiums. Instead, evaluate policies based on their features, benefits, exclusions, fees, and the financial stability of the insurer. The reputation of the insurance company and the quality of service provided are equally important.

3. Lack of understanding: Read your policy carefully, ask questions if anything is unclear, and periodically review it to reflect changes in your circumstances. Be aware of critical policy aspects such as grace periods, surrender charges, and renewal options.

4. Skipping comparison: Shopping around is essential. Obtain quotes from different providers, utilizing online tools and seeking advice from licensed financial planners or advisors. Comparison ensures you get the best value for your investment.

5. Adviser reference check: It’s important to do a background check on your adviser. Simplest way would be to ask for academics, qualifications, certifications, and experience in dealing with clients in similar situation. Testimonies from clients would be a huge plus.

Sandeep S. Jadwani, Head of Investment Advisory, Habib Investment Limited

Insurance, at its core, is the guardian of your financial well-being. It’s that reassuring presence that ensures your financial security when life’s unexpected twists and turns threaten to disrupt your plans. But it’s more than that – insurance is a peacekeeper for your mental well-being, offering profound reassurance during turbulent times. Let’s look at some scenarios that are relatable!

Case Study 1: Debt management and family protection

Meet a single parent of two young children, navigating the complexities of life. Carrying a mortgage, a car loan, and some credit card debt, this individual initially viewed insurance as an added expense. However, after careful consideration, they realised that if something were to happen, their children would be left with not only the grief of losing a loved one but also the burden of financial obligations.

This wise decision-maker invested in a term life insurance policy. It provided the peace of mind that if the unexpected were to occur, debts would be settled, and their children’s financial future would be secure. It wasn’t just an expense; it was a promise of protection.

Case Study 2: Income replacement and lifelong security

Now, let’s turn our attention to a couple in their early 40s with two children. With one partner as the primary breadwinner and the other working part-time, they recognised the need for long-term financial security, especially for their children’s education and their retirement.

After consulting with a financial adviser, they chose a permanent life insurance policy that offered lifelong coverage and cash value growth. It wasn’t just an investment in their financial future; it was a commitment to providing their family with a comfortable life, even if the unexpected were to occur.

Case Study 3: Legacy building and philanthropy

Our final case study introduces us to an individual who has achieved financial success through hard work and entrepreneurship. Over the years, they’ve accumulated wealth and developed a strong desire to leave a legacy. This individual is passionate about supporting charitable causes and organisations close to their heart.

They utilised a life insurance policy as a tool for philanthropy. By designating a portion of the policy proceeds to these causes, they ensured their values would endure, even beyond their lifetime. It wasn’t just an expense; it was a profound act of giving and legacy building.

Life insurance is an integral part of financial planning, offering security and peace of mind for you and your loved ones. It transforms the unpredictability of life into a manageable risk, ensuring that your family’s financial future remains secure, even when you’re no longer there to provide for them.

As you continue your journey toward financial independence and mental well-being, remember that life insurance is not just another expense but a wise investment in your family’s financial security and the legacy you leave behind. In the ever-changing landscape of finance, embracing life insurance is a steadfast step toward safeguarding your financial freedom.

Sandeep S. Jadwani — ACSI, CIB (Head of Investment Advisory, Habib Investment Limited – Regulated by DFSA) is a qualified, experienced and an award-winning financial adviser to high networth Individuals. He has been in the UAE for over 15 years and guiding individuals to efficiently and effectively manage their finances to achieve their financial goals. He believes financial fitness can ultimately lead to mental fitness.