How Can Expats Protect Their Income When Working Abroad?

When you move overseas and establish a new life abroad for you and your family you’re taking a significant risk.  You’re stepping outside of your comfort zone and leaving behind your network of family, friends and support.  With the risk can come substantial reward however, which is why so many of us choose to expatriate.

The rewards can come in the form of anything and everything from better weather to a better salary – with research from HSBC International identifying that on average, expatriate professionals earn up to £20,000 more than their ‘onshore’ peers back home.  But how can expats protect their income when working abroad?

This is a question being asked by more and more professionals well aware that they may not have the same levels of employer protection in place when they work overseas.  And at a time when job insecurity has never been so rife, we feel it is an important question to ask.  You have taken the risk of moving abroad, but you don’t now want to risk your new life overseas, so in this report we look at the main ways you have of protecting your income whilst abroad.

Permanent Health Insurance for Expatriates

Permanent health insurance must not be confused with private medical insurance – the latter is a monthly amount you pay so that you can have medical care for any ailments when you’re living abroad, whereas the former pays out if you fall long-term sick.  The usual payout is between 50 and 65% of your salary, and you will receive it tax-free if you repatriate to the UK, (and in many other nations as well), until you become well enough to work again or until you retire. 

This can be a valuable product for those who are self-employed abroad for example, and it is worth looking into your eligibility and suitability for this product if you’re worried about how you and your family would cope and pay the bills if you, the main breadwinner, were to become long-term sick.

Income Protection Insurance for Expatriates

This type of insurance does exactly what it says on the tin – i.e., it protects your income if you fall ill and cannot work, or, in certain circumstances, it protects you if you’re made redundant.  The payout is usually half your salary, and it is usually paid out for a year – although occasionally for up to 2 years.  This is the most common type of protection insurance that expats have in place to cover their salary, because most hope/assume/believe that if they were to be made redundant that they could get another job within a year, or if they were to become ill, it hopefully wouldn’t be an illness that lasted more than a year.

Expatriate Critical Illness Insurance

To supplement income protection insurance, critical illness cover is a good additional insurance to consider.  This pays out a lump sum if you, the policyholder, is diagnosed with certain conditions or illnesses from cancer to MS for example.  However, sometimes such a payout is part of a life insurance plan – so you do always need to look at which insurances you already have to ensure that you’re not doubling up and therefore paying out more than you need to to have the level of cover you need.

Life Insurance When Living Abroad

Life insurance comes in multiple formats as we discussed in an earlier article, therefore you need to think about what level of cover you want and need, what you want to pay for it each month, and how you would like a payout to be made.  For example, you can get a simple insurance policy that will pay off your mortgage if you die at any point during the term of your mortgage.  Or, you can have a more expensive policy that pays out a fixed amount if you die at any point during a set term.  You can also look at life insurance policies that pay out an income to your family for a set number of years if you were to die at any point during the policy term (see below.)

If you are wondering whether you should have life insurance or not, the simplest way to come to the right answer is to ask yourself whether anyone relies on you financially speaking.  So, if you have a mortgage then you have a debt and someone is relying on you to pay it off – if only the bank!  If you have children, then again, of course you have people relying on you to look after them.  In both scenarios you need life insurance.

If in doubt, ask a financial adviser to assess you from a fiscal perspective and to advise you on how you should protect your income as well as how you should be investing your income.

Family Income Insurance

This is another form of life insurance and it can actually work out cheaper than a straight life insurance policy that pays out a lump sum if the policyholder dies.  Not only is it cheaper, but many expatriates who have families say that they prefer the way such a policy works. 

Basically you sign up to pay your premiums for a fixed term – perhaps the first 18 years of your child’s life – at any point during that term, if you were to die the policy will kick in and pay the remaining spouse an annual sum to look after the child.  Of course the income received can be used for any purpose, but the main point of the policy is to look after a family if the main breadwinner dies

As you can see, there are many ways you can protect your income if you’re living and working abroad – you can protect it from redundancy, short and long-term illness and even death.  But remember, you need to make sure that you’re not doubling up on any insurances as that is a waste of money, so see whether your employer offers you any type of cover such as death in service, or whether your contract indicates that if you were made redundant you would be entitled to a payout, and then explore your insurance requirements with your financial adviser.  They will be able to advise you about what you need, which products are available for you, and how best to structure all your financial affairs when you’re living abroad to make sure that your wealth is protected as well as your family and your lifestyle.