Other What are the essential insurance types?

My wife and I are:

• 31
• Childless (for now)
• Renting
• Have minimal debts
• No assets
• Savings ca. 40k
• Both working

We have the following insurance types:

• Life Insurance (provided by employer a 4x annual salary; plus we want to take out an independent joint policy @ 300k each)
• Health Insurance (provided by employer)
• Critical Illness Insurance (@ 100k each)
• Travel Insurance
• Car Insurance (comprehensive)
• Home Insurance (contents and personal possessions)

I feel that we are well enough covered, but what about accident insurance? Is this something that every young adult should have? I'm thinking that if I or my wife had an accident tomorrow that permanently disabled one of us to the point where she or I could no longer work, this would incur a huge cost over the course of our lives seen as how we're only in our early thirties. Should we think about taking out accident insurance?

Many Thanks,

Accident insurance is very limited in its payout.

You should consider income protection, which would cover a portion of your salary should you be unable to work due to accident, illness or injury.

For me, this is the most important insurance you can have.


Steven
www.bluewaterfp.ie

Hi Steven,

Thanks. My wife and I live in Dubai.
I have not yet taken out the life insurance policy, but the proposed agreement includes the following:

• 300k death and PTD, the earlier of
• 100k critical illness (the premium of which is reviewed every 5 years)
• Term - 30 years.
• No second death
• Not indexed to inflation
• No option to renew after the term without a medical

The premium would be 140 euro per month (Friends Provident; I've shopped around and we won't get better terms.)

I'm very iffy about it though. It's expensive. I am thinking of taking the policy out for 10 years instead of 30 years and then, by the time the 10 years are up, we are virtually certain to have moved back to Europe and can take out a policy with more consumer-friendly protections. What would you advise? As stated, we do not yet have a mortgage or kids. However, my wife's mother is a dependent (but currently has cancer), but only costs us around 350 euro per month.

In addition, I'd like to ask you what percentage of our income should go towards insurance.
Currently, with home, travel, life/TPD/critical illness, and car insurance, the annual sum we're paying is around 2400 euro, which is around 2.5% of our current net income. On the other hand, we are projected to save 49% of our income in 2014 (remember we have no assets yet). Do you feel we are spending too much on insurance, or not enough (considering that we don't currently have income protection insurance)?

Considering your situation why do you feel the need for 300k life cover? Life cover is more often provided to provide for family if a parent dies. If there are no children why do you/your wife require 300k what are you providing this for - you are already well covered for this event as your employer provides 4 times salary which should make things easier for the remaining partner.

If you buy a house then mortgage protection is required - however at present the most critical would be income protection as suggested above. However as your employer provides life and health there is a good chance it also provides critical illness if the event you can't work - be sure not to over insure.

I agree with peno - I would question why would you need €300,000 life cover if you're both working, have no kids, and have Death in Service cover at work. Being blunt, if you died now, where's the financial loss? The surviving spouse would have the death in service benefit and would continue to work and earn for themselves.

I also agree with SBarrett on the value of Income Protection cover. In fact I tend to favour Income Protection over Critical Illness insurance. Income Protection and Specified Serious Illness / Critical Illness cover are sometimes confused although they are very different in terms of what they cover. Specified Serious Illness cover typically pays out a lump sum if you are diagnosed with one of the listed illnesses. Income Protection pays out an ongoing income if you are out of work for longer than the waiting period, due to any illness or injury. While both forms of cover have their respective merits, if it’s an “either/or” choice, I would recommend Income Protection as a priority as the range of events covered is broader.

Before considering starting your own Income Protection policy, be sure that you don’t already have Income Protection cover as part of a pension or other group scheme.

Thanks folks.

First: although I have life insurance of four times my annual salary, this ceases immediately upon contract termination, and this will definitely happen as we won't be expats in Dubai forever. The idea, then, of having a separate 300k policy is to have cover for an eventual mortgage / child (and we are planning to have a child in 2016) in place now because if we start a joint term now at age 31, the premium will be lower than if we start it at, say, age 40. Please do point out bad reasoning if you see it - I really want your advice here.

Second: my wife's employer also provides life insurance but her policy is valued at only 24k euro. This is highly insufficient in my opinion, not only if we have a child, but also if my wife is survived by her dependent mother - and also because my wife has an outstanding debt of 6k.

Is there any point in taking out a 25- or 30-year life insurance term now if we will need to replace it when we move back to Europe? We definitely want / need an independent policy now, but in terms of the timescale and scope, your input would be welcome.

Other points to note are that there is a 6-month income protection built into my company insurance plan and also a disability clause but no pension scheme of any kind (hence the emphasis on savings). For my wife, there is no income protection or disability cover.

I really appreciate the feedback and would value your comments based on the above.

Hi Desert

I don't think there is a rule of thumb on how much you should spend on insurance. It varies from person to person. You need to be analytical about it though or else you will over spend.

Start with if you are sick and can't work. Can you insure your income i.e. income protection.
Do you have bills you want to get out of the way if you're sick i.e. specified illness (I don't see why someone with no assets, kids or debts would need €100k worth of cover).
If you died, are there immediate needs for cash such as funeral and paying off debt. You should have a lump sum to cover this. What kind of income do you want your wife to have if you died? You don't have any kids at present and she's working, so maybe only a small level of cover. There are plans available that pay monthly incomes instead of lump sums. It is much easier to come to a monthly figure rather than a lump sum, where you need to make assumptions about returns etc.

If you are intending on cancelling these policies when you move back, I wouldn't go mad on cover. It is a good idea to take it out for a shorter period alright. You can put what is called a conversion option onto it. For a small cost, you can extend the term of the cover without any underwriting. The premium will be based on your age at time of conversion.

If I was you, I would focus on income protection first.


Steven
www.bluewaterfp.ie

Hi SBarrett,

I have asked the broker to reduce the cover from 300k to 200k, still with the 100k critical illness policy. Two of my extended family members have made use of critical illness policies in the past few years, so I think it's important...

However, when I asked about income protection cover, he said it's best to avoid local (i.e. Arab) insurers. So he found an Isle of Man insurer to cover my wife's income. To cover to the tune of 2000 euro per month, the yearly premium would be 500 dollars, and that's with a 3-month exclusion. A bit pricey. He says it's due to the nature of Dubai.

I also asked him whether I should take out a life insurace / tpd / critical illness policy for a short term (10 years) instead of 25 or 30 years, and then get a new policy when we move back to Europe.

He cautioned me on two things:
1. "the difference in premium is not that great" (for ten years, the monthly premium is 85 euro; for 25 years it's 107 euro; and for 30 years it's 121 euro).
2. He says that "from a risk mitigation perspective, you're better off going for the term that you want to be covered for, i.e. 30 years." He adds that if we opt for a 10-year policy and then move back to Europe in 10 years, "there's no way to guarantee your health at that age (when we would be 41), so the costs of taking out a new policy at age 41 might be much much higher (but he admits it probably wouldn't be much higher...the phrase he repeats is "risk mitigation").

I must admit I'm a bit stressed out by all this. I think the insurance market in Dubai and available to expats generally is not...optimal.

Specified illness cover is important. You just have to assess how much of it you actually need. What would you do with €100,000 in cover?

That income protection is actually good value. Make sure it is a plan that pays out until she is able to return to work or reaches retirement age and pays out if she is in an accident, illness or injury.

On the life cover, if you are going to cancel the plan in the future, why would you want a longer policy at a higher cost. Tell him you want a conversion option on it and then you have mitigated the risk because you can extend the cover regardless of health without any additional underwriting. You can be at deaths door and they still have to cover you.

I don't understand the point off so much insurance where there are no dependants. Far better to save the premiums for when one knows where one is going to live in life etc. Probably OP is listening to too much sales patter from vested interest brokers.

My wife's mother is a dependent as I said above.

Desert said:

My wife's mother is a dependent as I said above.

Click to expand...

I don't understand this. Is she not a European national? Most people are entitled to some sort of state assistance if they have no income or assets?

She is not a European national.