Do I Need Life Insurance?
Monday, 4 March, 2019
do you need some cover?
I’m sure you don’t like to think about your own mortality and getting life insurance is a total reminder of it.
Making an application means lots of paperwork and probably an encounter with a needle or two.
And then you’re actually paying something that you hope that you’re never going to need.
In fact you may actually resent paying those premiums and you wouldn’t be alone..
So why the hell do we need it?
It’s really easy to justify why you don’t have any
We’ve got news for you life insurance is really important…
And if you’re an expat it’s even more important than you can imagine!
We’re going to show you why it is and then we’ll help you decide whether you need life cover or not
But first let’s take a quick look at how life insurance works
what is life insurance?
You may well be very familiar with what life insurance is and how it works and if you are we apologise.
And if that’s you then feel free to skip this bit and move onto the next section…
Though if you’ve wondered how life insurance does what it does then keep on reading
The basic formula is this…
People ask insurance companies to pay out money in the event of their death
In return for this people pay the insurance company for this promise to pay which is called a premium
The amount that you pay depends on how likely it is that insurance company’s going to have to pay out
The factors that determine this are age, health, lifestyle and the timeframe for the cover
Another factor effecting the premium amount is value of pay out from the insurer
So, the older and unhealthier we are, the more cover we want and the longer we want it the more it will cost
The insurance company assesses these risks and then charges the appropriate premium
They know how many policies are likely to pay out
If this goes up or down the premiums charged on any future policies written will also go up or down
The policies that don’t pay out go towards paying for the ones that do
We could make it more complicated
Though we’re not that’s basically how insurance works
Now it’s time to look at the reasons for having life insurance
why do we need life insurance?
Now we’re going to take you through the five main reasons for having life insurance
These are as follows:
- Replace Lost Income
- Providing For Children
- Paying Off Debts
- Pay Estate or Inheritance Taxes
- Provide Liquidity
Lets take a look at each one in more detail
First though, if you want to know more about having effective life insurance that meets your “Expat Lifestyle” then please click below
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replacing lost income
So what would happen to your family if they lost your income for good?
We don’t mean you losing your job and finding another one.
We’re talking about your family losing you and the income that you bring into the household
In expat families it’s common for there to be a sole income provider in that family
It’s not always easy for the other partner to work in a foreign country
Even if both partners are working then the chances are that one will earn more than the other
Even in an unusual situation where both partners work and have similar incomes
Losing one of them is going to have a significant impact on the family
It’s going to be even more significant if you are the sole or major earner in your household
If you don’t have kids then is it a major issue?
Your partner can head back home find a job and get on with their lives
If you’ve made financial commitments together then it’s not that easy
Though we’ll talk about that later
If you’ve got kids though isn’t it a very different situation?
Of course it is
Kids need looking after even if they’re at school there’s always the holidays
If you’ve become an expat the chances are you want the best for your family
And without your income is that going to happen?
The other issue here is that even if you’re partner earns a similar amount to you or more
Losing a parent will mean that the remaining parent has some big choices to make
If they work less and look after the kids then this will mean less money coming into the house
If they continue to work as they did before then they’re going to need help taking care of the kids
This mens hiring help and this is going to cost money
So, the upshot is your family’s going to have less money coming in without you
And on top of that there could also be extra expenses
providing for children
Are you saving for you kids?
Is it for future education expenses such as university?
Do you want to give them a helping hand, a start in life?
Or is it a wedding fund that you’re building?
It doesn’t matter why you’re saving, the important thing is you’re doing it…
Have you saved what you wanted to?
If you’re still saving the answer to that is going to be no!
So what happens if those savings suddenly stopped, is that enough?
Again if you’re still saving the answer is most likely no, again
You can make sure that they get what you want them to have
Irrespective of whether you’ve managed to save as much as you wanted
Life insurance will do this for you and it will do it for much less than you’d have to invest to get the same amount
If you started saving a couple of months ago for them what will that do for them?
It’s not going to be what you wanted.
paying off debts
Have you got a mortgage?
If you do then without you would your spouse or partner be able to pay the mortgage?
Most of the time the answer to that question is going to be no, especially if there’s kids involved
What if I’m single I hear you say does it matter then?
Well, the questions changes slightly
Could your family afford to keep paying your mortgage?
Because that’s what would happen
Lenders expect payment even if you’re not around
Yes eventually they’ll sell the property though that can take time
And in that time interest and fees will rack up
If there’s no equity in the property then any shortfall needs paying
And that will fall on the people that you leave behind
That’s why having life insurance that covers what you owe is essential
Because you could be ruining someone else’s life if you don’t
If your lender doesn’t make life cover for the debt a priority then you should
paying estate or inheritence tax
Estate or inheritance taxes can get charged to someones estate when they die
The logistics and rates can vary from one country to another. Ranging from 4 -55% and being based on assets within a country or globally
If you’re married to someone who’s from a different country to you then things can get complicated. Normally you’d expect to be able to pass your estate to your spouse without any charge.
Got a spouse/partner with a different nationality and your estate could be subject to taxes.
If you have assets in a country or countries then your estate needs processing there.
Part of that process could be payment of estate or inheritance taxes. And until the estates clears this processing then your family can’t get access.
Paying the taxes is part of that process and until they’re paid your estate won’t get clearance.
You may also be subject to inheritance taxes from your home country even if you don’t live there.
If you’re british for example and you still own property there then they’ve got you…
That’s a 40% tax charge on your worldwide net assets after the deduction of any allowances
If you’re partner is british as well then your estate will pass without charge
If they’re not then it’s a different story and there could be a tax charge on your estate if it exceeds £650,000
We’re not going into this in enormous detail right now and if you want to know more you can do so here!
Needless to say if you’re British and live abroad it would be unwise to assume…
That inheritance tax isn’t an issue for you!
Back to the issue in hand which is how life insurance can help in such a situation…
The answer to that is having a policy which covers this liability
The policy covers the estate/inheritance tax liability. The beneficiaries then have the resources to pay the tax
Which in turn means the estate is released!
It is important that the policy is set up properly otherwise it could make a bad situation worse. You can find out how to do that here!
Time to move on to our final reason…
If you’ve got most of your capital tied up in illiquid assets such as property
Even if there’s no debt that needs repaying
Then releasing this capital means selling the assets
This can take time even in a buoyant market it could still take 7 months to release the money
If property markets are in a slump then it could take years
And it really isn’t unusual for expats to find themselves in this position
We know how much some of you like property…
So if you don’t have sufficient liquidity (cash available) that your family can use
Having some life cover that’s going to be available within days or weeks
Means that they have the funds available to tied them over until they can release some cash
Again it’s important to set the policy up properly so that it pays out as quick as possible…
Again you can find out how to do that here!
We’ve looked at the five main reasons for having life insurance.
Next we’re going to move onto who would benefit from having life insurance.
Before we move onto that if you click below we’ll send you our “Expat Life Insurance” e-mail series
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do i need life insurance?
Right now You may well be asking yourself this question
“Do I need life insurance?”
Let’s figure that out shall we…
If you’ve got people who rely on you for your care and support
Whether it’s physical, emotional or financial
If the support that you provide is taken away from them it will need replacing
Obviously, some things can’t be replaced though the financial support can.
Those finacial resources can then be used to help provide help and support
This is where life insurance comes in
It falls under replacing lost income and providing for children
Having life insurance will mean that your family don’t need to worry about how they’re going to pay the bills
It’s one less worry that they have to deal with when they’ve got more than enough on their plates
You get that, Right?
So, to sum this up…
If you’ve got anyone in your life who depends on the income that you produce
Then you need life insurance to make sure that this income is going to be there for as long as they need it
got a mortgage
If you’ve got a mortgage then you should have life insurance to cover it
It’s that simple!
Some lenders may expect this s a requirement of the mortgage approval
If they don’t that doesn’t mean that you should ignore it…
The lender will expect repayments to continue
As an expat you may have a rental allowance and you may have your property let back home
That rental goes towards paying the mortgage
If you’re not around and it’s your employer paying that rental allowance
Then won’t it stop?
You’re family will head back home and they’ll need to move back into the family home
No more rental to pay the mortgage!
And if they don’t have the resources to pay it off or can’t afford repayments
They’re going to be in one big mess
Sure they can sell it, though if they don’t managed to do that quickly
Equity in the property will get eaten up as interest and fees start to compound
They’ll be paying interest on the interest and on the fees
You may have rental properties that you let out and that’s going to provide income
That’s good news!
What happens if one two or three of those properties don’t have tenants for a while
Again would that put financial strain on your family?
Having life insurance is going to eliminate any chance of this
That’s why you need life insurance!
you've got life insurance from back home
We’re going to touch on this briefly
You’ve read the last section and your’re thinking…
“That doesn’t apply to me I’ve got life insurance back home to cover the mortgage”
There’s a good chance that you might need to rethink that
When an insurance company underwrites a policy they do it on the risks that you face in that country
Now you live somewhere else then some of those risks don’t exist anymore,
some may have increased and there’ll be some completely new ones
The chances of a claim may have gone up or they could have gone down
The thing is Insurance companies don’t like uncertainty
And you moving to another country is exactly that!
We’re going to leave that there for now
your estate is going to get hit by taxes
You’re an expat then this is an ever evolving situation because it depends where you live
As we’ve mentioned if you’re british and you’ve still got property there
There’s going to be Inheritance tax (IHT) charged on your estate
If you’re spouse/partner isn’t british it could happen much sooner than you expected
If your with another british person then you can transfer your whole estate to them without IHT
Again if you’re british and you’ve taken steps to change your domicile to another country
Then that isn’t the end of it
If you move to another country then you revert back to your domicile of origin
That’s the UK and it means that your worldwide estate is subject to IHT
It’s complicated we know
Figuring out what’s the best policy for you can be daunting
are you asset rich and cash poor?
You could be asset rich and cash poor
Whilst this isn’t an issue for your family whilst your income is coming in
Though this could be a problem if your income were to suddenly stop
If the assets that you hold are difficult to sell then what are your family going to use to live in the meantime?
It can take time to sell a property
So having a life insurance policy that can provide some liquidity to tied them over could be a real help for them
Once they’ve managed to liquidate assets and have money available the issues over
They don’t need massive amounts of capital just enough to tied them over
i've got great cover through my company
This is a common reason for not getting life insurance and it’s one that we’ve covered in more detail here!
So we’re going to be brief on this one…
Our question is simple
What happens when you leave or your company decides to be less generous?
How much attention do you pay to your corporate benefits package?
“I’ll get some cover for myself if that happens” is what you might be thinking
What if you can’t?
What if you’ve had a serious illness in the meantime?
There’s a saying in the insurance business and it goes like this
You buy insurance with your health not your money
If you’ve had a serious illness then you’re going to struggle to get life insurance
Being an expat has a significant impact on your finances
It’s an amazing opportunity that can completely change your life
Make the right choices and you’ll be on the fast-track to financial independence!
Find out how with our “Expat Money Guide” series
You’ll learn how to avoid the common mistakes that expats make and the steps that have worked
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life insurance for...
We’re starting off with the easy stuff, if you’re in one of these categories then you need life insurance
It’s a no brainer!
And these categories are anyone with dependents and anyone who’s got debt
If you’re in either of these categories then you really should have some life cover
The thing is if you don’t have life insurance your leaving people to struggle…
They’re going to be left worrying about money
If you’re single and you’ve got debt you should still have life insurance
Well, that’s because that debt is going to fall on someone else
It could be parents, grandparents or siblings
They will be expected to fund a debt that they never asked for until they’re able to discharge the debt
If you’re putting money away for your kids future…
Isn’t it worth making sure they get what you wanted them to have?
Having life insurance means that this is going to happen whether you finish saving for them or not
You may have already put things in place before you became an expat.
The thing is that move abroad means some big changes for you as we’ll show you in our “Expat Life Insurance” e-mail series
So it’s worth reviewing decisions you’ve already made
When it comes to estate planning you may think that it’s enough that you’re leaving something for them
And you’ve got a point
What if you’re leaving them a massive headache that’s going to drag on for years
Is that what you want
Life insurance is an effective estate planning tool
One that’s survived changes in legislation that other planning tools haven’t
If you’re estate is going to get hit with taxes it’s a good idea to sit down with the beneficiaries and let them know
Even if you don’t want to do something about it
It doesn’t stop them taking out a policy on your life to fund the liability
No more headache…
Finally, you may think that you’re leaving your spouse/partner with enough
What are you leaving them with?
If it’s assets that take time to sell and hardly any cash then they’re going to struggle
Leaving them with some money to tied them over isn’t going to cost a fortune
And it’s going to make a massive difference to them at a tough time
We’ve given you something to think about…
If you’ve got questions then let us know and we’ll do our very best to answer them
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