Life Insurance For Expatriates and Frequent Travellers

What is an expatriate (expat)

An expatriate is somebody who doesn’t live in their country of birth. Many expats are people who reside overseas due to the business that they do, or because they enjoy the culture or have started a family with someone native to the country. Being an expatriate has many tax implications [1] and financial responsibilities so taking out a life insurance policy can be a very sensible move to provide security to your dependents.

What is a frequent traveller

Most people do not consider themselves to be frequent travellers, and if asked the question, are likely to deny being one. But it may be helpful to know that a frequent flyer is defined as somebody who takes three or more return flights a year [2]. There are many people that fall into this category and frequent travel can affect their life insurance policy if not declared so it is important to bear this in mind when taking out all forms of insurance, not just travel insurance.

Somebody who travels regularly, whether for work or pleasure, would be wise to consider whether travelling insurance or overseas life insurance which includes unlimited travel would best suit their individual circumstances.

Why do expats need life insurance

Ultimately, for the same reason that anybody else does – to provide financial stability to their families or dependents in the event of their death.

Many foreign countries require their citizens to have certain types of insurance in order to reside in the country. For example, in Spain, expats must have health insurance, car insurance, home insurance (if their home is covered by a mortgage) and pet insurance (if you are a dog owner residing in Madrid or if you own a breed of dog that is recorded on Spain’s potentially dangerous list).

Some overseas countries require expats and foreign nationals to have life insurance in order to get a mortgage. Some may prefer that you take out a policy with a local company whilst others will be happy to accept an overseas insurance policy – it is important to check with the country that you reside in before taking out cover.

It is important to understand the laws regarding insurance in whichever country you reside in and to ensure that you comply with them.

Because most life insurance policies only cover you to live and work in your native country, many expats are left wondering what is the best option for them and this is where expat life insurance comes into play.

What is expat life insurance

Expat life insurance, often referred to as international or overseas life insurance, is a policy which covers you regardless of where you live or travel to (see exclusions below). Should you die within the policy term, it pays out a lump sum to your nominated beneficiary to ensure that they will be able to continue to be financially stable without you.

It is a very important type of life insurance as if you are living outside of your native country, in the event of your death, your family may not be entitled to government support or social security which they would, should they be resident in the UK.

If you are concerned that your family would be unable to cope financially if you were no longer with them, a life insurance policy will provide you with peace of mind, but also an extra monthly expenditure. If your reason for concern relates to current debt levels or worry over managing the increased costs of living, then help is available from a number of debt charities, such as StepChange [3] who can provide you with free, confidential debt advice tailored to your individual circumstances. Money management support is also available from the UK Government in the form of the Money Advice Service [4].
Most expat life insurance policies require that you have financial interests in the UK in order to qualify for a policy, and these may include mortgage on a property in the UK, an inheritance tax liability, be listed by Companies House as an owner or partner in a UK business or be financially responsible for somebody living in the UK.

How much expat life insurance should you take out

If you have people that depend on you financially, then it is important to carefully calculate how much life insurance you need in order to provide them with the financial stability that they would need in the event that you were no longer with them.
There are many ways of calculating this figure but a sensible way of doing it is to determine how much outstanding debt the family has (including mortgages and other secured loans), the value of your monthly income for the remainder of your working life, childcare expenses including clothing and education until the youngest child turns 18, funeral fees and probate expenses, and the cost of returning the family to the UK. This figure should represent a reasonably accurate indication of how much money your family would require in order to continue to live as they currently do if you were no longer around.

What type of expat life insurance do I need

There are five main types of policy for life insurance available to expats and you should choose the one that best suits your individual circumstances and the legal requirements of the country in which you live.

1. Life Cover for mortgages in the UK

This type of policy will pay out sufficient funds to cover the outstanding cost of a mortgage on a property that you own in the UK but is unlikely to provide additional financial income to allow your beneficiaries to continue to enjoy their current lifestyle.

2. Level Life Cover

Many policies offer cover from 10 to 40 years and with level life cover, you are guaranteed that the insurance payout will be the same regardless as to how long into the policy you pass away. This is a relatively expensive type of policy but is a popular option for people who have an interest only mortgage or significant sums of outstanding debt. If you pass away outside of the policy term, there is no payout.

3. Decreasing Life Cover

These policies will again usually last for between 10 and 40 years but the payout on a decreasing life cover policy is designed to reduce on an annual basis, accounting for a reduction in mortgage repayments and childcare costs. This is often a more affordable option than a level life cover. As with the level life cover, you are only covered for the term of the policy so if you wanted cover to continue at the end of the term, you would need to take out a new policy.

4. Whole of Life Cover

A whole of life policy will cover you for the whole of your life, provided that you keep up the payments. This means that it doesn’t matter at what point you pass away, your dependents will still benefit financially from the insurance policy life payout. You can decide whether you wish the payout to be level or decreasing when you take out the policy and on many policies, you can make adjustments as needed on an annual basis but always check the small print or discuss this with your chosen insurance company if it is important to you to be able to make changes.

5. Annually-renewable

Many expats may only be abroad on annual contracts and in this case, an annually renewable policy may be appropriate. These policies only cover you for death during the year’s term, however they are easily obtainable without a medical and most will include terminal illness cover and personal accident cover. If you are a frequent traveller as well as residing overseas, this can be a sensible policy to cover all eventualities.

If you are likely to undertake significant overseas travel whilst living as an expat, you should consider whether including travellers insurance in your life insurance policy offers better value for money or whether a separate standalone travel insurance policy will suffice.

Many life insurance policies include critical illness cover as a bolt-on and you should consider whether this is something that you wish to include in your policy, based on a risk assessment of your family history.

In order to choose the best life policy insurance for you, you need to carefully consider and balance value for money and peace of mind. Statistics show that most people can achieve better value for money with a term insurance policy with an annually decreasing payout, however if you consider yourself to be high risk, perhaps due to a family history of medical issues, then you should consider whether the increased premium is worthwhile to provide you and your family with the peace of mind provided by a whole of life policy which guarantees you cover and the necessary payout for the rest of your life.

Expat life insurance exclusions

There are several critical exclusions on this type of policy that you should be aware of. Most of the policies will not cover suicide, either at all, or within the first year of the policy. This is because research shows that expats are at a high risk for mental illness [5] which means that they represent a greater risk to the insurance company.

Other common exclusions include death from a pre-existing medical condition, death from negligence, illegal activities, drug and alcohol abuse.

You also will not be covered for death due to war or terrorism in a country that the British Foreign, Commonwealth & Development Office has advised its citizens not to travel to, such as Libya, Iran, North Korea or South Sudan. You may also face exclusions should you choose to reside in or travel to one of these countries, even if your death is unrelated to hostile action. You should also check whether your traveller insurance policy will be valid if you decide to visit a country that the FCDO advises against travelling to.

You should always make sure that your nominated beneficiary is aware that you have taken out a life insurance policy as another common exclusion is that payouts will not be made if your death isn’t notified to the insurance company within 12 months.

How are policy fees calculated

As with every insurance policy life insurance is calculated based on a number of risk factors, which include your age, your occupation, your lifestyle and hobbies, your health and family medical history, whether you smoke or drink alcohol, the term and amount of cover you need and type of policy that you choose.

Because every policy is calculated based on an individual’s personal circumstances, it isn’t possible to provide an estimate. However, typically, a woman in a sedentary job who doesn’t smoke or drink is a lower risk to an insurance company than a man who travels frequently, engages in high risk adrenaline sports and has a family history of diabetes. Therefore the woman in this example would pay considerably lower insurance premiums.

It is vital that you are honest with your insurer and answer all of their questions to the best of your ability, as failure to disclose risk factors could result in your insurance policy being invalid, resulting in your beneficiary not receiving any of the expected and needed payout.

Summary

When comparing the best life insurance policies, you need to carefully consider yours and your family’s needs, the laws of the country in which you are residing and balance value for money with peace of mind to ensure that the policy you choose will provide the cover that you need at a price you can afford.

References

• [1] www.gov.uk
• [2] stepchange.org
• [3] expatfocus.com