Universal Life Insurance on the start-up founder or manager of mega-projects could mitigate the risks of failure of the project or start-ups and protect the investment or finance by venture capitals and other funding agencies

News Highlights:

  1. There are more than 650,000 businesses active in the UAE and more than 90 percent of them are small businesses.
  2. The UAE currently hosts 5,174 start-ups in the UAE, according to Tracxn, a global start-up funding solutions provider.
  3. In 2021, investors more than doubled the amount of cash they handed out to start-ups, hitting $621 billion globally and shattering the previous year’s record.
  4. Start-ups in the Middle East and North Africa (MENA) region raised US$1.7 billion funding in the first half of 2022.

Financers of start-ups and megaprojects could eliminate risks by ensuring the owner of the start-up or the project manager of the megaprojects through Universal Life Insurance Policy with a nominal premium that mitigates the risk of non-performance, inability to lead and death of the insured.

The success of most projects and megaprojects as well as start-ups depends to a large extent on the leadership and their ability to use the finance effectively to deliver timely results. Their failure to deliver could jeopardise the project, megaprojects or start-ups, therefore could put investment, and finance at grave risk.

About 90 percent of start-ups fail, according to research by Start-Up Genome, and 10 percent of start-ups fail within the first year. Across all industries, start-up failure rates seem to be close to the same. Failure is most common for start-ups during years two through five, with 70 percent falling into this category.

There are more than 650,000 businesses active in the UAE and more than 90 percent of them are small businesses. The country currently hosts 5,174 start-ups in the UAE, according to Tracxn, a global start-up funding solutions provider.

Start-ups raised more venture capital funding than ever last year and more cities around the world started to look like tech hubs — although Silicon Valley remains firmly in the lead. In 2021, investors more than doubled the amount of cash they handed out to start-ups, hitting $621 billion globally and shattering the previous year’s record, according to new data from research firm CB Insights. The U.S. accounted for about half of the world’s funding total, with start-ups in the country raising about $311 billion, according to the report.

Start-ups in the Middle East and North Africa (MENA) region raised US$1.7 billion funding in the first half of 2022. With a 90 percent failure rate, this could translate to US$1.53 billion financial loss and puts the investors at risk of losing their wealth due to a number of factors, including the failure of the founder of the start-up.

So, funding in start-ups is extremely risky and many investors have lost money on start-up funding. The same is true for projects and mega-projects whose fate depends of the project manager’s leadership and his ability to deliver the project on time and as per the contract.

It is therefore crucial for financers, investors and project owners to cover their risks by ensuring these key people with a hefty sum so that the financers or investors could recover their money in case of death and disability.

However, while the going is good, most people do not realise the risk, until something drastically goes wrong and the financiers, investors and project owners start to count losses. A Universal Life Insurance Policy could help save investors from such a disaster.

“This is undeniable that project owners, banks, investors and other financers invest on individual and their leadership. Mega-projects go on hold when leader of the organisation dies while he was still active in project,” Ms Leena Parwani, Founder and Chief Executive Officer of LPH Financial Services, says.

“How secure one’s investment is, especially in the advent of wishful frauds that one can’t control, and performance of individual also one can’t control so as the key persons death as well. Universal Life Insurance covers major risks and liabilities to create a shield of security. While there are many risk factors when an investor invests on someone or with someone.

“Such problems can be addressed with insurance, we have been insuring along with fund houses risk on investment on start-ups, SME or even mega projects.”

LPH Financial Services has recently tackled two cases in the UAE – that could set the trend for such risk-based insurance products that helps the financers and investment community, especially when they are funding projects whose success depends on the leadership and performance of the project or team leader.

“We have addressed this problem for an investment fund house, where we have insured an individual for US$35 million life cover. Original fund investment was US$10 million while with valuation gain investors is promised to gain 5X in 7 years, keeping the cover moderate investor placed the policy on start-up leader for 3.5X of principle for next 10 years. There is clear insurable interest on place for investor,” Leena Parwani explains her recent experience that makes it an ideal case study.

“This is unique solution and we have seen demand is increasing on this matter as it is now part of risk management factor. We have recently insured another Dubai-based businessman who was awarded project of US$200 million in joint venture with a family business of the investor. The investor has taken US$50 million life cover on the Dubai-based businessman to cover the risk, arranged by us.”

This way investor is able to secure liquidity and, in some cases, full or partial recovery of his funds. Such life cover is assigned conditionally to the investor.

“Financers and investors are now more aware to insure the founders, partners of start-ups and project directors of megaprojects in order to mitigate risks and this should become a trend now than later to protect the investment in case of death,” she said. “We have created a campaign to create industry-wide awareness of the risks associated with unprotected and uninsured investment in start-ups and projects.”

Leena Parwani, who started her financial services practice in 2013, has been one of the UAE’s top financial consultants for the last nine consecutive years, serving large corporations, entrepreneurs and business leaders.

Her company LPH Financial Services offers financial consultancy on personal wealth protection, estate planning, succession planning against potential risks to individuals and companies against various kinds of loss or damage.

About LPH Financial Services

LPH Financial Services is a Dubai-based leading financial services and insurance advisory that specialises in cost-effective risk assessment, family estate planning, wealth preservation, wealth creation solutions to corporations, small and medium enterprises as well as high networth individuals – in their estate planning, financial planning and business continuity plans.

LPH has a strong and well-balanced portfolio of business covering health, estate planning, life insurance and education policy coverage. It’s health insurance portfolio covers more than 17,000 lives and keeps growing.

LPH Financial Services is run by a team of dedicated financial planners and insurance professionals who are here to ensure that the clients make the right choices when it comes to their financial plan. It aims to become the most trusted and reputed financial consulting firm in the Middle East by leveraging on the collective expertise of its professional team and always delivering excellence.

Simultaneously, the company intends to build long-term value in the insurance and investment industry through alliances with established global partners. Its team is also deeply focused on helping create abundance in health and wealth for expatriates living in the Middle East. LPH believes in setting realistic goals, achieving them in a timely manner with coordinated efforts, and living its vision through every milestone.

Established in 2013 by Ms Leena Parwani, Founder and CEO, LPH Financial Services helps businesses, business owners and high-networth individuals with effective, customised financial planning that solutions are of great value and helps them manage their business, life and financial future better.

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