^{Building Wealth} Financial protection with life insurance and critical illness cover

Protecting your family beyond savings

Life sometimes takes unexpected twists and turns, which could disrupt your plans, cause financial vulnerability or impose stress on your family’s wellbeing. While circumstances may be beyond your control, having certain types of insurance like life and critical illness, can provide a financial safety net to help you through this challenging period.

Securing your financial future goes beyond acquiring assets, growing your personal wealth and building financial resilience through investing. Insurance protection such as life and critical illness cover should not be overlooked, as it can provide a financial safety net for you and your loved ones.

Research from the UAE Healthy Future Study, a long-running study of Emirati nationals out of New York University (NYU) Abu Dhabi, found that age-adjusted obesity stood at 26.5%, dysglycaemia (commonly associated with pre-diabetes) at 11.7%, dyslipidaemia at a striking 62.7% and hypertension at 22.4% among young adults (average age 25.7) in the study. The most common diseases are also among the most debilitating. Leading causes of critical illness are cancer (52%) and heart attacks and strokes (39%).¹

Life and critical illness policies are often discussed together but they are fundamentally two insurance products that are designed differently.

Differentiating life and critical illness cover

While both policies provide a one-time payment, the key difference lies in the events that trigger a payout. Life insurance provides your named beneficiaries a lump sum after you pass away. Its main use is to replace income, clear debts like a mortgage or fund essential expenses such as a child's education or household costs – if you were no longer around.

Meanwhile, critical illness policy pays a lump sum to the policyholder, the insured, after being diagnosed with a life-threatening medical condition such as heart attack, stroke, cancer or kidney failure, although the exact conditions covered vary depending on the insurance provider.

Unlike ordinary medical insurance, which pays the hospital, a critical illness claim goes directly to the policyholder and can generally be used at the policyholder's discretion, whether to pay rent or mortgage during your recovery, pay for your personal and your family’s needs, replace lost income or to cover rehabilitation costs. Critical illness policy is meant to complement a medical insurance.

A serious illness can affect more than just health. In addition to medical and treatment costs, everyday expenses such as housing, groceries, education and childcare can continue to accumulate during recovery. Critical illness cover can help provide financial support during this period, helping individuals and families manage these expenses while focusing on recovery.²

Greater awareness of the financial implications of a serious illness can help individuals and families strengthen their financial resilience and plan with confidence. In some jurisdictions, even with good health coverage, a cardiac event, for example, can run well past what people expect.

What to watch out for

Beyond the cost of cover, many individuals may not have enough financial protection in place and may be unaware of the shortfall. This is often referred to as the protection gap, which is the difference between the financial support a person or family may need during a serious illness or disability and the protection they currently have. Research has highlighted that inadequate income protection remains a significant challenge across both developed and emerging economies, leaving many households financially vulnerable when unexpected life events occur.

However, everyone requires different levels and durations of cover depending on age, dependants, existing savings and what your employer already provides. Before taking out a policy, here are a few things worth considering.³

• Read the fine print
  Understand what is excluded from the coverage. Critical illness payouts are usually tied to a specific list of diagnoses and severity thresholds. For life insurance, certain causes of death may not be covered. Exclusion may also apply based on residency status, for example, in the event of death overseas during a holiday or while travelling to a high-risk region. Coverage for both policies can also be structural. For example, an insurance could cover one spouse and not the other, depending on the family’s requirements.
• Start early
  This may make cover more affordable. In general, younger and healthier applicants can access lower premiums for the same level of cover.
• Avoid being overinsured
  Before taking out additional cover, review any protection you already have through workplace benefits, existing insurance policies or personal savings. This can help you avoid paying for overlapping cover and ensure any life or critical illness protection addresses genuine gaps in your financial safety net.
• Declare pre-existing medical conditions, if there are any
  Insurers need to have a clear picture of your medical history before you take out a policy. Withholding such information could invalidate your policy or cause a critical illness claim to be rejected.⁴

To understand how protection solutions can support a broader wealth strategy, learn more about critical illness and life insurance cover options.

Sources:

1. UAE Healthy Future Study
2. Metlife
3. Zurich Insurance Group
4. Aviva