Most people love to hate insurance, but having the right protection in place is often an overlooked aspect of financial planning.
Insurance is costly and complicated at best – and even more so for expats who must factor in the extra costs of living in another country. But like or loathe insurance, the right cover can offer financial protection for you and your loved ones if the unexpected should happen. The downside may be cost, but the real benefit is peace of mind and a confident financial future if disaster should strike, like losing a job, poor health or even death.
Insurance comes in two types – personal and general protection. Personal insurance protects a person, while general insurance protects things, such as a home or car. The cost of cover is balanced against the risk of the insured event happening. That risk can rise or fall depending on where an expat lives, so having the right level of cover and protection that extends across borders is vital. Having the wrong policy can mean paying extra for protection you do not need or not having enough cover to make a claim.
One of the basic rules of buying protection is to ignore cost to concentrate on cover. Buying cheap is a false economy because the policy is unlikely to have all the features you need. A good broker will draft a short list of policies offering the right features so you can pick the cover that best matches your budget.
Some points to consider when buying insurance include:
Insurance providers offer a wide range of cover. Some are core policies including standard options with add-ons at extra cost to safeguard specific risks. For instance, a life insurance policy may come with a critical illness option. Others are standalone policies to guard against unemployment or illness.
The main four personal protection policies are:
Term or whole of life are the periods when a personal protection policy is in force.
Most private health and general insurances are term cover lasting for 12 months, when the risk is reassessed and cover renewed.
Whole of life policies run until you die.
Generally, term policies are much cheaper than whole of life, but whereas whole of life premiums stay the same for the duration of the cover, term life costs can fluctuate as your circumstances change.
Whole of life policies typically have a surrender value, but term policies have no build-up of money to cash in.
Your policy lasts for a pre-agreed number of years and pays out a set amount if you die during that term. This type of policy can either cover a fixed debt, such as an interest-only mortgage, or provide a lump sum for your dependants in the event of your death.
Your policy lasts for a pre-agreed number of years, which usually matches the length of your mortgage, and pays out if you die during that time. Each year the potential pay-out decreases as it is designed to be used with a repayment mortgage where the outstanding loan decreases over time. This means that this type of policy is cheaper than a level term insurance.
Your policy covers you for the rest of your life so your dependants get a pay-out no matter when you die. This type of policy is typically more expensive than those that cover a set period of time.
Specialist brokers offer all kinds of general insurance policies, but the ones of most interest to expats are:
That means taking out local cover or an international policy designed for expats
After the move, whether you buy or rent, you need to safeguard that same furniture and belongings
Many motor and home policies offer limited cover for technology, so a standalone top-up is often an option.
Always keep track of how much your valuables are worth and make sure this is reflected in your home insurance. Keep photographs and estimates to prove your claim. Update them every couple of years to account for market changes, wear and tear and inflation.
Relying on protection offered by British life cover or general insurance is not an option for expats.
All but a handful of policies will stipulate that cover is restricted to the UK except for limited circumstances, like taking a holiday overseas.
That’s because the risk and costs of cover are assessed against the odds of the insured events happening in the UK, not in another country.
Taking travel insurance as a safeguard against falling ill while overseas is an example. Travel insurance is the right product for a tourist or businessman making short trips abroad, but excludes cover for someone living in another country.
Trusting medical care to a European Health Insurance Card (EHIC) is also fraught with problems. An EHIC offers free or low-cost treatment but will not cover the cost of medical evacuation, which can run into tens of thousands of pounds.
Expats should top-up their life insurance even if they have cover from their employers because they often find out too late that they have no insurance if they lose their job.
They may have protection for them and their families while they are in a post, but this evaporates once they are no longer an employee.
That could leave expats facing medical bills and repatriation costs of thousands of pounds.
Ask an independent financial adviser who has no connection with the employer to look at the on-the-job cover and how much taking out a life insurance top-up policy might cost.
Buying other personal insurance, like life cover with critical illness and income protection is also worth considering.
This depends on personal circumstances. Every expat and their family needs a bespoke solution and the blend of events covered and how much is paid out to settle a claim should reflect this.
Cover also depends on what type of expat you are.
Someone moving around as contracts and assignments change probably needs a portable policy that updates with each move.
Expats moving permanently to a new location can take country-specific protection.
To work out the level of life cover or income protection you need, list your outgoings and any extra costs you think you might have to pay if you are seriously ill.
The goal is to maintain your standard of living if you suffer a serious illness or die suddenly.
Consider these factors:
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