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Taxing issues on life insurance, redundancy and making a will
I am considering taking out life insurance but am confused as to which is the best type of plan. Can you explain the differences? AR Abu Dhabi There are two main types of life assurance policies: term assurance and whole of life. Term assurance has a fixed sum assured (the amount of death benefit) and a fixed term. These are selected at outset and do not change. Once medically and financially underwritten at outset, the premium will not change throughout the policy term, unless there is a change of country of residence or occupation that is considered higher risk. A whole of life policy, as the name implies, is designed to continue for the length of a person's life. The premiums are fixed for a set number of years and will then increase to reflect age and mortality rates. Many plans offer the option of fixing premiums for a number of years, usually for 20 years, to age 80, or even for an assumed lifespan. The premium will increase if you wish to build in these longer premium provisions. Unlike a term plan, the premiums on a whole of life plan can never be absolutely guaranteed, as they are based on an assumed underlying growth rate, usually around 6 per cent per annum. Provided the small investment element of the plan achieves this figure as an average annual return, then the premiums should remain as quoted. If the plan underperforms, then you may face an increase in premium or a reduction in the sum assured, but you would be notified of this and given a choice as to your preferred course of action. You will often have an option to include critical illness cover with either plan. The best option depends upon your particular circumstances, and I would always recommend getting independent advice before deciding on a plan.
I was made redundant earlier this year, and the company that I worked for has informed me that I am not entitled to a severance payment. When I accepted the offer of employment, I was told that I was going to be offered the company pension (a UK pension). After some time it was established that, for tax reasons, I was not eligible for a UK pension, and so in lieu I was paid a sum each month as a contribution to a private pension. The total that I have been paid in this way is in excess of my gratuity entitlement. As such, my previous employers say that I am not due any severance pay. However, the UAE Federal Law No 8 on Regulation of Labour Relations is quite clear in Articles 140 and 141. TS Dubai
The UAE does not operate a system of redundancy payments for employers, although notice periods are as per the individual contract or labour laws, and the gratuity is payable based on period of service and final basic salary. While the labour laws say that an employee is entitled to an end of service gratuity, Article 141 states that "where a firm has a retirement, insurance or a similar scheme, a worker who is entitled to a retirement pension may opt for treatment under the said pension or severance pay or under the pension or insurance scheme, whichever is more advantageous to him". While TS's initial contract of employment stated that he was eligible to join the company pension scheme, a UK arrangement, this was not a legal possibility, as he was not a UK resident when employment started. As an alternative, the company offered to make a regular payment in lieu of this and the standard gratuity. This was backdated to his service start date and has appeared on his monthly payslip as "pension allowance". Apart from this there is little in the way of documentation to show what is being paid and how, but as TS has been receiving these monies, I do not see that he has grounds for complaint, especially as the total paid over the period of service is about 30 per cent more than the statutory gratuity amount. While the employer could have been expected to set up some sort of savings scheme, the individual has the option to do this himself with additional flexibility. I hope TS has used the pension allowance prudently, as he will have no joy if he takes this case to the Ministry of Labour because he is not out of pocket.
I need to get a maid but a friend has offered to "lend" me her maid for a few hours a day. If this woman has a residency visa, it is OK for me to employ her in this way? JH Sharjah It would not be legal for you to do this. The maid may only work for her sponsor, and if she works for you as well you could be liable for a considerable fine. Earlier this year the Ministry of Labour announced that it intended to take action to stop this from happening, so I would strongly advise you not to take this risk. You should either sponsor a housemaid yourself or employ someone from an agency.
I have a few assets in the UAE, and I have been told that I need another will for these. I already have a will that was written in the UK a few years ago. Do I need another one? BC Dubai As a British national, only your final will is taken into consideration. The making of a new will revokes the previous one, hence the term "last will and testament". If you made another will your previous one would be invalid. If your assets do not include property and are not of huge value, your best option may be to make some minor alteration to the existing will by way of a codicil. If, however, you own property or other major assets, you may need to make significant changes that would merit the writing of a new will. This should take into consideration your assets worldwide and should be written with reference to UK inheritance rules, as you are subject to UK inheritance tax on your worldwide assets. I strongly recommend that you use an experienced lawyer to arrange a will, as this is a complex matter and will-writing services do not have the same level of understanding of the legal issues.
Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. She can be reached at email@example.com