If the last two years have taught us anything, it is that we should expect the unexpected. That’s why life insurance is a key element of a sound financial plan. We take a look at the main mistakes people make when it comes to life insurance.
Life insurance mistake number 1: no life insurance
This is an absolute no-no. Why? Because if something happens to you, money will be required to cover your debt/mortgage and everyday living expenses such as utility bills, childcare, education fees etc etc.
I bet your house and car are insured. And rightly so, they are valuable assets. But you and your ability to earn are far more valuable. If you are 30 years old and earning $50,000 per year, over the next 30 years of your working life you are worth $1.5m, without taking into account likely salary increases and bonuses. That’s probably significantly more than your car is worth!
Action: If you don’t have life insurance, prioritise putting this in place.
Life insurance mistake number 2: assuming cover is valid when you relocate
It is surprising how many expats assume that the cover they had back home will remain valid once they have relocated abroad. For the vast majority of people this is not the case. If you are moving abroad or have recently located, and have made this assumption, you should contact your insurer as a matter of urgency to clarify the situation. It is more than likely that emigrating will have invalidated your life insurance.
Action: Check with your existing provider whether your cover is valid and if not, take out a new policy tailored to your new circumstances.
Life insurance mistake number 3: insufficient cover
Many people are underinsured when it comes to life insurance. Requirements change throughout your life in line with your evolving circumstances. Buying a property? Revise your life insurance. Getting married? Revise your life insurance. Having a baby? Revise your life insurance. Insufficient life insurance cover puts your family at financial risk should something unexpected happen to you.
Action: Take the time to look carefully at your life insurance requirements and if necessary, increase cover.
Life insurance mistake number 4: only insuring the family breadwinner
Families with children often have life insurance for the family breadwinner but fail to insure a stay-at-home parent or part-time caregiver. This is a huge oversight. Couples with children should ensure that both parents have life cover. Let’s not underestimate the value that a parent adds, even if they are not active earners. A 2019 survey by salary.com estimated the ‘market value’ of the work done by a stay-at-home mum (although this could equally apply to a stay-at-home dad) at $162,581.
Calculating how much life insurance you need
If any of the scenarios above apply to you, you’ll need to work out how much life insurance you need. Here’s a handy checklist of expenses that you need to take into account (some may not apply to you):
- Repatriation of family to home country
- Outstanding debts (credit cards, bank loans, other loans, overdraft)
- Annual day to day living costs for family
- Outstanding mortgage balance
- Potential future home purchase
- Future family health care/medical insurance
- Children’s schooling
- Children’s tertiary education
- Education/Retraining to enable spouse to return to work
- Life insurance policy for spouse
- Other insurance
- Spouse’s retirement/pension
- Funeral expenses
Some of these are one off costs, but others, such as day to day living costs and medical insurance, need to be multiplied by the number of years they will be needed for. Obviously, the more debts and commitments you have, the higher the value of cover you will need. You can deduct any savings accumulated and existing life insurance, for example if you have a certain level of cover through work (beware, often work cover is insufficient and needs topping up).
Life insurance is less expensive the younger you are so even if you are in your twenties and responsibility-free, it is still worth considering taking out a policy.
Another useful life insurance tip is to consider multiple, smaller policies for specific needs. You might take out one policy to cover a spouse until retirement and another to cover the costs related to caring for your children until they become financially independent.
There is a lot to think about when it comes to life insurance so why not make life easy for yourself and take advice from a professional? Infinity’s financial advisers have a wealth of experience advising expatriates on their precise needs and have access to a wide range of providers while being tied to none, giving you plenty of choice.
Don’t neglect this extremely important element of your financial planning. Contact us for a free consultation today.
A leading provider of expat financial services and wealth management services across Asia.