Almost any thing or event can be insured; car insurance, health insurance, homeowners’ insurance, travel insurance, the list goes on. These types of insurance cover protection against a possible eventuality, in the form of a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. In terms of life insurance, it offers protection against a certain eventuality!
The value of life insurance cannot be overstated. The most compelling reason to have it is to provide for those you leave behind. This is extremely important if you have a family dependent on your salary to pay the bills. Industry experts suggest a life insurance policy should cover “ten times your yearly income.” This sum would provide enough money to cover existing expenses, funeral expenses and give your family a financial cushion. That cushion will help them regroup after your death. It’s particularly important for expats, whose families will incur repatriation costs.
Traditional life insurance
There are two main types of life insurance policies: ‘term’ and ‘whole-of-life’. Term insurance covers you for a fixed term, after which point the policy expires. Whole-of-life typically covers you until death. It is possible to convert a term policy to a whole-of-life policy.
Term insurance is generally much cheaper, however, when the term is finished your cover stops and any premiums you paid over the term period are an irretrievable expense. A whole-of-life policy invests a portion of your premiums and you can accumulate accessible savings.
Term policies are typically used to insure debt such as a mortgage. A decreasing term policy is perfect for covering mortgage debt as it is cheap and can be set up so the value of the cover decreases in line with your mortgage debt.
Critical illness cover
Critical illness cover is an insurance product in which the insurer is contracted to make a lump sum cash payment if the policyholder is diagnosed with an illnesses specified on a predetermined list. The policy may also be structured to pay out regular income upon the critical illness event. The payout may also be upon the policyholder undergoing a surgical procedure, for example, having a heart bypass operation. Generally these policies are used to cover a potential loss of earnings from being unable to work for a prolonged period of time.
Total permanent disability cover
Total permanent disability would cover you in the event that you became unable to perform your employment function due to a disability, such as irrecoverable injury sustained in an accident.
What policy and how much cover do I need?
Each person has different requirements and many factors should be considered including age, current liabilities, children and your estate / portfolio.
A life insurance policy should cover all debts and future foreseeable expenses for your family.
Critical illness should cover an amount equalling a minimum of 6 months’ living expenses. Typically after 6 months you will either be back at work in some capacity or your life insurance will be paying out.
Beyond the obvious death or disability benefit protection, there’s an often overlooked link between insurance and retirement, making insurance an an invaluable tool in your financial and retirement planning. For example, life insurance can:
- Fill gaps in retirement saving that may happen with premature death or job loss.
- Help to provide income in retirement, even with unplanned medical needs or other emergencies.
- Meet late-retirement objectives, such as compensating for social security loss, or leaving a legacy for children or grandchildren.
There are three main types of life insurance products that can meet retirement planning needs:
- Term life insurance
- Protection-focused whole-of-life insurance: offers a death benefit for an indefinite period. (It might offer some cash value or simply a guaranteed death benefit.)
- Accumulation-focused whole-of-life insurance: offers a death benefit, but it’s also designed to accumulate a cash value that can be used for a variety of future needs.
Insurance can be used to mitigate the impact of Inheritance Tax (IHT). An estate must be identified and valued, and then the estimated IHT paid before a “grant of probate” can be issued. Often this is a huge time and financial burden on the next of kin, so an insurance policy is a great tool to preclude that burden.
It is also extremely easy to put an insurance policy into trust. Most providers have this as an option when you take out the policy. This means the policy payout will fall outside your estate and not itself be liable for IHT.
While insurance is expensive and certainly takes a chunk out of your budget, being without it could lead to financial ruin. Most people’s home country life insurance policies do not cover them while living abroad. Our qualified advisors will help you find expat insurance policies that cover you internationally. We will help you understand your insurance contract so there are no unwelcome surprises down the line. We can also look into your options for consolidating your insurances, advise on the products most suited to your needs, and assist with structuring them within a trust.