Top 10 Expat Life Insurance Disasters

When it comes to life insurance you might think that not having life insurance in place as an expatriate would be the biggest disaster, but in actual fact there are another nine would-be, potential expat life insurance disasters that stack up as equally potentially horrendous.

If you’re moving abroad for work or pleasure, or indeed, if you’re already living or working overseas, this article will explain how you not only need to get life insurance, but you need to get the right type and level of life insurance so that you can ensure you and your family and debt obligations are properly protected.

Because getting the right type and size of policy is potentially not as easy as it sounds, follow this guide to potential life insurance disasters to avoid the pitfalls and therefore get the correct cover in place.

Top 10 expat life insurance disasters: -

1)  Thinking You Don’t Need Expat Life Insurance

You might think that because you’re fit and healthy and relatively young you don’t need life insurance.  You might think that because you’re not married or you don’t have children that you don’t need life insurance.  You might think that the simple fact you’re moving abroad barely changes anything significant in terms of your requirement for this type of insurance.  All of these assumptions are probably potentially disastrously wrong!

If there is anyone in your life who relies on you financially speaking, then you have a direct obligation to have life insurance in place – at least morally!  So, whether you have a landlord you owe rent to, you have a mortgage provider you owe the outstanding balance for your house to, or whether you have a partner with whom you share the bills, you have an obligation to consider getting life insurance in place.

Of course, if you have children then you have absolutely no excuse not to have expat life insurance – because how significantly altered would their life be without you?  On an emotional level alone they would be devastated, so you wouldn’t want to leave them out on a financial limb as well would you?

2)  Buying the First Policy You Come Across

No two life insurance providers are the same, therefore the only way you can ensure you’re getting the best and most for your money is by comparing quotes and insurers. 

This can of course be frustratingly time consuming, so you can always ask your financial adviser to research the market for you and find the best tailored quotation for you.  As their client, they are highly likely to take on this task and perform it to the best of their ability – but even when they present you with quotations, we would still advise you very strongly to look closely at policy wording to make sure it is absolutely the best policy for you.

3)  I’m Young and Beautiful – I Don’t Need to Get Cover Yet

By thinking that putting off getting insurance will save you money in the short-term, you could actually be putting yourself in a situation where you cost yourself dearly in the long-term.  Aside from considering that you may actually die by being run over by a bus even if you are keeping young and beautiful, did you know that the younger you are, the fitter and healthier your lifestyle, the better policy and deal you will get from an insurer? 

So actually, it doesn’t pay to put off getting insured, rather it can actually pay to get insured sooner rather than later.

4)  I Only Need to Cover My Mortgage

Getting life insurance in place to cover your outstanding mortgage debt is good – it’s very good – however, assuming that that’s all the cover you need could be very bad indeed! 

If you have any outstanding balances on a loan or credit cards you need to have this debt covered too.  Then you need to think about the fact that your loved ones such as your partner and children will be left without you and without your income if you die.  Will they cope financially?  Or are they reliant on your salary?  If the latter is the case, then you need to make sure that your life is insured for a sum that will help them through, fiscally speaking, if they were to lose you.

5)  I Only Need Life Insurance While I’m Living Abroad

We’ve come across this strange argument a few times on our collective travels.  Some of the non-perpetual travellers out there who are just popping overseas for a few years to stash some cash think that they only need to be insured whilst they’re abroad and take out a very short-term policy as a result.  Well, not only is this a cost in-effective way of doing things, it’s unwise too.

If you get life insurance in place to cover your debt obligations such as your mortgage, you’re likely to need the policy for the 25 year term of the mortgage.  What’s more, if you’re getting cover in place to protect your family, surely you need cover for the length of time that your children are likely to be financially dependent on you?

6)  There is Only One Type of Life Insurance Policy Isn’t There?

It seems that most people think they have to buy life insurance for a fixed term and to cover a fixed sum.  Well, this is actually one of the most expensive ways to buy life insurance and therefore, not always the best way to go about it.  This way is called level term…however, if you’re paying off your mortgage and debts slowly throughout their term, chances are you only need decreasing term assurance.  The amount insured for decreases over the term of the policy, therefore the policy is cheaper to buy.

If you’re insuring your family for income purposes there’s another policy to look into that’s called family income benefit – this type of policy pays out an annual sum of money to your family for a fixed term in the event of your death.  Because every year you’re insured and still alive the ultimate amount that would have to be paid out decreases, so the policy is more cost effective than a level term insurance product.

Speak to your financial adviser about which type of policy would be best for you and your dependents…

7)  I’ll Get a Joint Expat Life Insurance Policy With my Partner to Save Money

Whilst joint policies are cheaper than two individual policies in most cases, the difference in terms of monthly premiums is really actually marginal – whereas the level of cover you’re buying is hugely and negatively different. 

For a start, if you are jointly insured the insurer will only pay out once and for one life even if you both die.  Secondly, you’re paying only slightly less for half the cover than if you took out two separate policies where you’d have double the cover for only a tiny bit more a month.  Think about it…and speak to an adviser if you’re unsure of the best way to go.

8)  The Small Print is Always the Same, I Never Read It

We agree, small print is desperately dull and boring – however, particularly when it comes to life insurance it is oh so critical for you to read it.  There are many exceptions and exclusions that you need to be aware of, not only that, but you have to make sure that you fill in the hugely long and complex (read “boring”) application form as openly and honestly as you can. 

Because a life insurance payout is usually a significant sum, these life insurers will always be looking for reasons not to pay.  So if they find any discrepancy in what you wrote on your form and your actual medical history for example, they won’t pay out.  So you need to be 100% honest and accurate, and you need to read the small print to make sure you know exactly what you’re buying in to.

9)  I Have Expat Life Insurance, I Never Need Worry Again

Well, if you already have a policy in place – good for you!  However, if your circumstances ever change, you may well need to update your policy.  For example, if you’re promoted and in receipt of a much better salary and benefits package, chances are you upgrade your lifestyle to match your new found wealth!  This can mean that if you die and still only have a basic level of cover in place, your family have to go through a real drop in lifestyle.

Also, if you have children or take on more debt for example, these are reasons to again review the level of cover that you have in place.  Working with a financial adviser when you’re an expat and living abroad means that holistically, your entire financial well-being will be taken care of, and as part of your annual financial review, your adviser can make sure you’ve got the right type and level of cover in place.

10) Life Insurance is IHT Exempt

Oh no it isn’t!  You may well think or at least hope that a life insurance payout will be exempt from inheritance taxation, but you could well be very wrong.  Many expats think that by moving away from the UK and living abroad they escape British inheritance tax – well unfortunately that is not the case. 

When it comes to IHT it is where you were born and raised that has the bearing on whether you pay UK IHT or not, it has little if anything at all to do with where you were living when you died.  So, that’s the first thing to bear in mind.  Secondly, you might think that if you have a policy in place for your loved ones that it will automatically go into their bank account free of IHT or even probate worries.  However, if you haven’t made a will and you haven’t thought about very simply and easily writing the life insurance policy into trust, you could be leaving your family open for one almighty tax bill.

Take professional advice today about not only getting insured, but getting the correct level and type of insurance in place, and protecting any potential payout from inheritance taxation.  If you want our assistance in finding an adviser who can help you, .(JavaScript must be enabled to view this email address) and we’ll put you directly in touch with a qualified professional who can assist you sooner rather than too much later!