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The Top 4 Reasons Why Expats Are Underinsured
Thursday, 4 July, 2019
are you an expat who's
under insured?
i didn't expect that!
Recently, I read an article that said 60% of brits didn’t have life insurance making them chronically underinsured.
This story made me raise an eyebrow I was truly surprised.
Everything I’d ever learnt about financial planning underlined that sound financial planning started with protection.
The article then went on to say that 43% of people without life cover had children, 38% were married and 16% had a mortgage.
The biggest trigger for taking out life cover was getting a mortgage and the second, having a child.
Though the resulting action was far from immediate…
Which, on average took 11 and 14 months after the respective event.
This information was taken from research done by comparison site MoneySuperMarket.
Given that you can buy life insurance at the supermarket checkout in the UK
Which makes this data all the more shocking.
Right?
Also the length of delay in action after the trigger event was also extremely surprising.
If life insurance is such an important part of the financial planning process and readily available…
What was going on?
so, what's going on?
Had changes in financial planning regulations been a factor?
The move from commission to fee based advice didn’t have a direct impact on life insurance.
Though had the prospect of paying fees stopped people getting advice?
It was always a counter argument against the introduction of the fee based system.
People with tighter budgets suffering because they may not be able to afford to pay advisers.
Whilst the current system has brought transparency, are there people getting left out?
At the same time the supply of life insurance providers and direct selling had sky rocketed.
The article didn’t draw any conclusions for the reasons
Yet it did seem as though something was wrong.
It seemed to me that people may not be getting that external prompt they need to take action
And sort out their life insurance.
Sometimes what we actually need different to what we
think we need.
This is the role of the financial planning process.
what keeps you underinsured?
This got me thinking, if the situation’s so dismal in the UK…
Then it had to be much worse in the expat community.
Makes Sense Right?
Whilst it’s difficult gauge given the geographical range and national diversity.
There are some key factors that point towards this being the case.
Expats have the very same reasons for not getting cover sorted out as their domestic counterparts.
The mortality factor
For starters people don’t like thinking about their own mortality.
We don’t like to think about death…
And life insurance is a big reminder for anyone.
One thing that’s clear from the 11 and 14 months outlined in the study…
Is that we always think that we’ve got time.
Let’s be honest applying for life insurance is one of those jobs that’s easy to push to another day.
Unfortunately sometimes we don’t have more time and there’s no way of knowing this.
we don't like making decisions
We always have excuses for not making decisions because it’s hard.
In fact making decisions is thought to be the most energy draining activity that we do.
So, we’ll do it when we lose some weight, stop smoking or once we’ve got the summer holidays are out of the way.
The problem is there’s always a reason to not make that decision
Right?
Then something happens like an accident or illness…
And what do you do then?
We’re forced into making a decision by which time it’s often too late
we don't trust insurance companies
For some people the reason for not getting life cover may be a mistrust of insurance companies.
We all read stories about insurance companies not paying out on claims.
No one doubts that this happens though in reality it’s very rare
Something going wrong makes for much better headlines…
How often do you hear about everything going right?
On the whole life insurance is reliable and pay out rates are in the very high 90th percentile.
In fact most modern policies payout on the diagnosis of a terminal illness.
lack of understanding
Another factor may also be down to a lack of understanding
Do you know what you need?
What type of policy should you get?
How much cover do you need?
How long do you need cover for?
The financial services world tends to be full of acronyms and technobabble.
This is very off putting for some people.
Which can lead to a lack of action because you don’t want to get it wrong
Life insurance doesn’t have to be that complicated
you've got more important things to do!
Another misplaced, yet common attitude is the money’s better spent elsewhere.
It could be an investment a mortgage or car repayments that trump paying life insurance premiums
Though none of these will give you what life insurance does
You don’t want to claim on your life insurance
Right!
Though you want your family to have the financial security if they ever need it
That’s one less thing for them to worry about if they lose you.
On the whole the cost of life insurance has been getting cheaper making it more affordable.
So, if you’re unfortunate enough to claim on a life policy…
It will be one of the best returns you’ll get from any investment that you make.
Which makes it money well spent.
why it's even harder for expats
We’ve looked at the main factors that we all face
The reasons that are common to everyone who’s underinsured
On top of this an expat will faces other obstacles
Let’s look at what other factors to push that uninsured rate over 60% for expats
1. insurance from back home stops working
Even if you were on the ball and sorted out life cover when you were back home
Things change when you become an expat
It doesn’t matter where you come from in the vast majority of cases moving abroad will end your cover.
You may still be paying premiums.
This doesn’t mean that you’ve still got cover.
Even if you’ve sent them a change of address…
It still doesn’t mean that the policy provides cover!
A policy will stop being effective once you’ve been living abroad after 3 or 6 months
If your family has to make a claim the policy won’t pay
If you’ve got a policy from back home you should ask the insurer if you’re still covered
You’ll be surprised at the answer
2. expat financial advisers don't like setting up life insurance
You may be an expat who’s discovered that your life cover isn’t working…
Or you may have only needed life insurance since you’ve become an expat
You know you should do something about it
Though looking at those figures from the UK the odds are you’re not going to off your own bat.
You could meet with a financial adviser who deals with expats
You’d expect the adviser to highlight your need for life insurance.
After all it’s the starting point for any sound financial plan.
Unfortunately, for many advisers who deal with expats insurance isn’t a priority
In fact most will go out of their way to avoid recommending a life insurance policy
Investment business is where their priorities are because it’s easier to set up
Life insurance has much more paperwork and making sure that you get your medical tests takes a lot of organising
So it’s unlikely that you’ll get the prompt that you need
And we’ve already discussed that missing this trigger has consequences
We all need a certain amount of external guidance especially with the unfamiliar
And you’re probably no exception to this
Right!
3. get insurance, move on then repeat
Another route that’s available to you as an expat is a local policy where you’re living
Though this can create some serious issues for you…
Which could ultimately result in you being without insurance when it’s needed
Or it may mean that the cover you’ve got is inadequate
First of all the financial regulation where you are now may not be as advanced or stringent as home.
Which can mean product disclosure can be less transparent.
It can also result in you getting stuck with a product that’s not suitable
And there’s very little you can do about it!
You may think that you have one thing and it turns out you have something completely different
Another issue you can encounter is restrictions on the amount of cover a foreigner can have.
If the limit is below the cover level you need then you’re going to be underinsured
Taking out a local life policy can also expose you to currency risk.
If you’ve got a debt in one currency and your life insurance is in another
You’re running the risk of putting your family in a position to not be able to clear them
If the local currency falls then the amount paid out could be much less than your debts
The thing is you never know when you’ll need to make a claim
If it’s at the wong time then there could be a big shortfall
The lender will expect your family to make this up.
They’ll have to keep up the repayments until they can repay the debt in full
If they don’t have the resources to clear the debt then they’ll have to sell the asset
This isn’t always the fastest process and can take months even years.
If they can’t make these repayments then the interest will snowball and erode any equity in the asset.
And don’t underestimate how big the shortfall could be
The shortfall could be bigger than you may expect because currencies.
Don’t think that this can’t happen?
It has and it will again…
In 1998 during the Asian currency crisis the Indonesian Rupiah lost 80% of its value
And the South Korean Won 50%.
Even the Australian dollar fallen by over40% against the US dollar.
Though the biggest issue you’ll face as an expat with a local policy
Comes when you move on…
This is the situation that can lead you being unable to get life insurance
As with the policy from back home the local one is going to stop covering you
Move to another and you’ll be going through the application process all over again
But what happens if you can’t?
If you’ve had a serious illness or even an accident then you could have an issue
In fact…
And if this happens you’re exposing your family to financial risk.
Left unable to clear those debts and unable to keep making repayments
4. it can be hard to find
All this means that the best option that an expat has available to them is an international life policy.
This will provide them with a completely portable solution.
If they move the cover moves with them giving them continuity.
This means no more applications and medicals.
Most importantly they don’t run the risk of being uninsurable due to ill health.
In the vast majority of cases we would always recommend a term life policy.
The issue here is that the number of insurers who provide such policies is very limited.
To complicate matters further availability can reduce depending on where you live.
Expats, living in more regulated jurisdictions will have more options available to them.
Where as expats living in other countries that are more opaque may have very little choice.
what about you, are you underinsured?
Whilst we can’t say for sure if the rate of insurance is lower in expat communities.
The assumption that it would be isn’t an enormous leap given these extra obstacles.
As we said we didn’t expect the UK figures to look anything like they did
And getting insurance there is very easy.
There’s an extensive array of insurers subject to stringent regulations.
Over the years we’ve met so many expats who thought that they had their life insurance sorted out.
When they started to ask the right questions they found out that they weren’t.
Whatever your views are please believe us when we say life insurance could be some of the best money you spend.
If you’re an expat start taking the steps today to make sure that you’ve got it right!
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