The importance of life and critical illness cover in the UAE
The first symptom seemed mild so Muskan Mittal initially dismissed it.
But when the pain in her breast did not go away, her husband persuaded her to visit the doctor. “As most people do I said it’s nothing. It will go,” says Mrs Mittal, 35, a mother-of-one from India. “But the pain persisted so I started getting checked out in January or February 2015.”
After undergoing a battery of tests, including an ultrasound and a MRI, she was told not to worry. However, a couple of months later, she found a lump around the same area. She flew to India this time, where a doctor diagnosed stage three breast cancer which had spread to her lymph nodes.
“It was really devastating. I was just 33,” she says. “I kept trying to stay positive thinking they are just going to take the lump out and it’s going to be the end of this whole nightmare. But it did get quite [bad], even after that.”
The one thing Mrs Mittal says helped at the time was having life insurance, which had built-in critical illness cover. Just seven days after filing the paperwork she received a cheque for US$100,000 from her insurer, Zurich.
She was lucky; she did not need to use the money. Both Mrs Mittal, who is a partner at a successful direct marketing company called Reach People Direct, and her husband continued working and her health insurance paid for the treatment.
“But what it gave us was a lot of peace of mind,” she says. “We didn’t have to worry about the what ifs.” Her policy provided her with the choice to keep working if she wanted to, and she did, because it helped her take her mind off her illness.
But many in the UAE may not be so lucky if they were diagnosed with a chronic illness, because so few take out life and critical illness cover.
“If you look at the penetration rate, which is a measure of the total amount of money spent on insurance premiums against GDP, it is one of the sound measures for measuring insurance penetration,” says Chris Bagnall, chief underwriting officer and head of claims for Zurich International Life. “In the UK it is around 11 per cent. In the US it is 13 per cent. Then compare it to the UAE; just over 1 per cent of GDP is spent on life insurance here.”
And according to a survey released this month by Friends Provident International (FPI), only a fifth of UAE residents have critical illness insurance.
Not only that, of that group more than two-thirds said it was provided by their employer as part of their insurance package. This leads FPI to suspect they are confusing it with medical insurance, meaning even less have adequate cover in place. So why do so few of us take out life or critical illness cover?
“Part of it is our psychology as a society here,” says Mr Bagnall. “We move to the UAE, we start earning big bucks and think that we are invincible. What happens is a financial adviser will go and discuss the options and [people] say that is for old people. I don’t need that.”
Many are not aware they need the cover because they are less familiar with the product, says Julian Vydelingum, a chartered financial planner for AES International.
In countries like the UK, death in service cover, a group policy that covers all employees and typically pays out around four times their annual salary, is fairly standard.
“Your average company doesn’t tend to offer it here,” says Mr Vydelingum.
A director of a UAE branch of a UK-based public relations firm, who asked to remain anonymous, successfully lobbied his company to offer death in service cover when he arrived in the UAE.
“The firm I worked for in London had a standard policy for all employees which said their name beneficiary would be paid out three times their annual salary if they died while they were employed by the company,” says the Briton.
“When I came here I found that no such policy existed for employees here and I made it my business to fix that. I felt it was wrong that employees, just because they lived abroad, in a more tax favourable environment, shouldn’t enjoy the same benefits as their UK colleagues,” adds the director.
Now 30 employees employed by his company in the UAE are also covered by a death in service policy. Experts say companies offering such a benefit tend to be international branches. But more local companies are introducing it, says Mr Bagnall.
“It depends on the size of the company and the financial stability of the company,” he adds. “But it is certainly starting to catch on. And that gives a base layer. But four times annual salary isn’t enough. Your family aren’t going to survive very long on that but it provides an emergency fund to get back to their home country, live for a couple of years and get some stability.”
So is extra life insurance or critical illness cover really necessary?
Steven Lawton, a British financial adviser with Holborn Assets who has 32 years’ experience, argues that it is, adding it is the first thing he discusses with clients.
“I so often come across people who have taken out a savings plan or a retirement plan. And that’s fine, but I say, ‘you have two children. What happens if you die?’ So often they say I never thought of that,” he says.
Mr Lawton feels so strongly about it that he makes his clients sign a disclaimer to say they have discussed it if they say they are not interested.
“It makes them stop and think. I can’t stress enough the importance of this cover,” he says.
Steve Cronin, the founder of Wealth, Investment and Saving for Expats (wiseuae.com), an independent community providing financial education and support in the UAE, agrees it is important – but only for some.
If you are single with no dependents, you probably don’t need it, he says. And if you have a family and you have a lot of savings, it might not be necessary, either. “It comes down to how much money they need [to survive without you],” he adds.
However, experts stress one thing to consider is the age you are at the time you take the policy out.
A single 30-year-old might feel they do not need it, but may reconsider 10 years down the line once they are married with children. And the difference in cost can be considerable.
According to Zurich, a life insurance policy until 65 with no critical illness cover for a 30-year-old male Indian non-smoker – a UAE resident with standard risk – costs US$147 a month. Leave it until they are 40 and it will cost $318 a month. That is because the older you are, the more at risk you are of dying or developing a critical illness.
Zurich says its average life cover claimant is 51 at the time of death, and the average critical illness claimant is 47.
But if you do decide to take out a policy there are a few things to consider.
Mr Cronin, and many other experts, advise against taking out insurance policies which include an investment element.
“You don’t need it as a savings vehicle. You would be much better off investing in an offshore platform. I would recommend term life insurance [life insurance to cover you over a specific period, such as up to the age of 60] over any investment policy. And that is because the investment policies turn out to be very expensive,” says Mr Cronin.
“There are lots of fees and charges and commissions. And they are very significant. They could be 4 to 7 per cent a year. It is exactly the same as taking out a savings plan. You would be much better off buying 20-year or 30-year term insurance and paying a much smaller amount every month and then investing the money you save yourself. You will find over the 20 or 30 years you will make a lot more money,” he says.
Mr Vydelingum agrees. He suggests consulting a fee-based adviser to research the market and find the policy that will work best for an individual, rather than pay the adviser the biggest commission.
Insurers like Zurich recommend that a young family should take out cover for about 20 times their annual salary for life cover and eight times their salary for a critical illness.
Mr Vydelingum says the multiple is not important. Just work out how much your family needs to survive and pay for the cost of education and retirement he advises.
Those with existing life insurance cover that was taken out in another market should also ensure they are covered here.
“I have found instances where clients are not covered living in the UAE,” says Mr Lawton.
“They are very likely to be covered in the euro zone but not necessarily when they are out of this zone. They should get it in writing that they are protected.”
And even if they are covered by a policy taken out elsewhere, it may require them to consult doctors in that country if they are very sick, warns Mr Lawton.
Another consideration for critical illness claims is which illnesses are covered and what the burden of proof is to claim. Some policies require claimants to prove they cannot carry out tasks associated with daily living, such as making a cup of tea, to be successful.
“There is also a period where you won’t have any cover [for critical illness]. Let’s say you take the policy out now. Most of them have a 90-day waiting period for cover. It does vary,” says Mr Vydelingum.
Mrs Mittal, who had her policy for five and-a-half years when she claimed, has now received the all-clear.
“I truly believe in the power in insurance,” she adds.
Protecting your loved ones
By Jessica Hill
In the evening of February 16 this year, the unthinkable happened to Laith Rupert Abdul-Nour.
The previous evening, the British-Iraqi, 50, had signed online documents to pledge intent to take out life insurance.
He’d been dragging his heels about signing up for life insurance for the previous two months, according to his financial adviser James Spence of Globaleye. But Mr Abdul-Nour had finally heeded Mr Spence’s advice and taken out an Dh11 million policy, at a cost of Dh2,000 a month.
Mr Spence’s assistant dropped into the office of Mr Abdul-Nour’s business, which carries out certification inspections on building equipment, on Hamdan Street to tie up the bureaucratic loose ends.
She was probably the last one to see the business owner alive. After calling his wife, Anna Shmargay, at 7.30pm to let her know he was leaving work, Mr Abdul-Nour was involved in a fatal car crash just a five-minute drive from his home in Al Reef.
Ms Shmargay, 39, was at home at the time with their three children, two daughters aged 14 and two and a 10-year-old son.
“I wasn’t worried at first when he didn’t arrive, because often he’d call and say he was coming home but then he’d get stuck in the office for some reason,” explains Ms Shmargay, from Kazakhstan.
Although there were no witnesses, it appears Mr Abdul-Nour’s car hit a concrete border before crashing into the other side of the road. At 9.30pm, Ms Shmargay was contacted by a doctor at Mafraq Hospital to say her husband had been admitted and was in a critical condition.
“He had an operation and they did a lot of things to try to save his life, but unfortunately they couldn’t,” she says.
Although Mr Abdul-Nour signed his intent to take out life insurance, the application needed further medical and money laundering checks before the policy was finalised. Therefore he was not entitled to the full Dh11m payout. Instead he received US$250,000 “pre-approval cover” - an amount awarded for the period between signing the initial papers and the policy being approved. The insurer was Zurich.
“This is a small amount, compared to the Dh11 million the family would’ve been entitled to had Mr Abdul-Nour signed the papers two weeks previously,” says Mr Spence. “No money had exchanged hands other than signing a document.”
Julian Vydelingum of AES International says this type of payout - where someone dies before underwriting and paying - is not standard for life insurers. However, once those procedures are completed there is generally no time limit where an insurer won’t “honour a life claim”. But, he warns, some policies will not pay out if the insured party’s death is due to alcohol or drug misuse, as a result of war or suicide.
“There is a waiting period on suicide, ie in the first two to four years, an insurer won’t pay out for suicide,” he says. “Some insurers exclude this altogether.”
Mr Abdul-Nour’s death was Zurich’s first case in the Middle East of someone dying between submitting the initial documents and the policy starting. The application was online, rather than by hand, meaning the insurer’s underwriters received it the morning of the death
Ms Shmargay says her husband would have been glad his family received something. “The prospect of paying Dh2,000 for life insurance every month when he was in good health was something he wasn’t very happy about,” says Ms Shmargay, who is staying in the UAE.
Updated: November 25, 2016 04:00 AM