Most financial advisors would recommend you make life insurance part of your overall financial plan. We take a look at how life insurance works and how you can decided how much life insurance you should to purchase.
As an expat, digital nomad, or frequent traveler, the thrill of discovering new places and unique cultures may have driven a lot of financial and personal decisions for you. Perhaps you chose the college you attended based on the opportunities it offered to study abroad.
You may have taken a job in a foreign country – even if it wasn’t the most lucrative position offered to you. Chances are you have a separate savings account or travel credit card earmarked for funding your new adventures.
You may even purchase travel insurance when you take a trip to protect your travel investment. Travel is a passion that takes money to pursue. What strategies have you used to get all those stamps on your passport?
Why do you need life insurance as an expat?
Regardless of whether you’re an expat, a frequent traveler, or just an ordinary Joe or Jane, most financial advisors would advise you to make life insurance a part of your overall financial plan.
Why is life insurance so common a recommendation? Sad to say, it’s probably because death eventually gets everyone. Life insurance offers financial support to the people who depend on us. In some cases, life insurance may also provide you, the policyholder, with protection while you are living.
Let’s take a look at how life insurance works, how much life insurance you need and why, as an expat, you may have special requirements for a life insurance policy.
The best life insurance strategy for you will depend on:
your financial circumstances
your family structure
Expat life insurance differs from a normal life insurance policy –
it covers you no matter where you travel in the world
Different types of life insurance cover
Life insurance falls into two general categories: whole life and term life.
Whole life insurance
With whole life insurance, a portion of the premiums you pay go towards building the policy’s cash value: that’s money you can access while you are living. Whole life insurance acts like a savings account in that respect.
What’s more, the cash value of your policy is often automatically invested for you in conservative assets and has the potential to grow over time. The income you earn on that investment is typically tax-deferred.
Whole life insurance pays a death benefit when you die, at which point the cash value of the policy is erased. If you stop paying your premiums, a whole life policy will not pay a death benefit, but the cash value of the policy will remain.
Term life insurance
Term life insurance also pays a death benefit. However, a term life policy doesn’t build cash value as you pay your premiums. You can’t borrow against your policy and your premiums are not invested.
Your policy only has value for as long as you pay your premiums and for the specific term of the policy.
The proceeds of your death benefit, under both whole life and term life, are generally not subject to taxation.
Should I choose whole life or term life insurance?
If you’re wondering why someone would choose term life over whole life insurance, one major reason is cost. Term life insurance is invariably less expensive than whole life.
That’s particularly true while you are young. A term life policy, when you’re 25 years old and in good health, may cost as little as US$8 per month – less than you’d pay for a sandwich at your local café. While whole life insurance, as its name suggests, is something you pay for over your entire lifetime, term life insurance is something you buy when you need it.
Why is that important? Your insurance needs may change over time – for example, while you have young children or if your parents become financially dependent on you. When your kids are grown and able to provide for themselves, life insurance becomes less of an imperative.
How much life insurance you need depends on several factors. You can determine the amount of life insurance to purchase by considering who you wish to protect and what their financial needs will be in the future.
Ask yourself a few key questions and get out your calculator and you can probably come up with a pretty good estimate. You can also take your answers to these questions to a licensed insurance agent, who can help you calculate the answer, as well.
Key questions to work out how much life insurance you need
How much is your annual income?
For how many years do you want to provide support for your loved ones?
How many people are dependent on you for financial support?
What does it cost to support each of your dependents each year?
How much do you have in savings or conservative investment accounts?
Will anyone else contribute to their support and how much?
Do your dependents have special needs, such as permanent disabilities or costly medical care?
Are there large expenses, such as private school or higher education, that you want to provide for your dependents?
If you own a home, how much remains on your mortgage?
Example life insurance calculation
Let’s look at a hypothetical policyholder to work out how much life insurance you might need.
Joe is the married father of twin toddlers. He earns US$100,000 a year and his kids’ mom earns the same. Most of the couple’s income goes toward covering their monthly expenses, but they have managed to put US$200,000 in savings accounts and other conservative investment accounts, which leave their funds liquid.
They don’t have any significant debt. Joe wants to cover his kids’ financial needs until they turn 21, or 19 years from now. He’d like his kids to have the option of going to college, to give them the best start in life. He’d also like his wife to have the option of not working outside the home until their kids reach school age.
Here’s how Joe might calculate the amount of life insurance he needs to achieve his goals:
10x Joe’s annual salary
4x Joe’s wife’s annual salary
+ 2x college educations @ US$100,000 each
Joe’s mortgage balance
Joe’s calculated life insurance coverage
The financial burden of raising children today is heavy. If you don’t have children, you may need far less life insurance. But either way, if you want to be sure that someone you love is financially protected, you’re going to need some.
Life insurance for parents
Life insurance is a must for parents of young children. According to its most recent data, the USDA reports that the average cost of raising a child to the age of 18 is over US$233,000.
That data is from a 2015 study. So the actual cost for families raising children now may be quite a bit higher. Housing and food account for the lion’s share of that considerable budget. And for parents who wish to pay for their child’s college education, you can add in an additional $100,000. (College may cost less if your child attends a public university or is fortunate enough to earn scholarships.).
The death of one parent puts increased pressure on the surviving parent to pay for child-rearing expenses. That, coupled with the emotional costs of losing a loved one, can make the strain of single parenting all but unbearable.
Having life insurance can’t erase all of the pain, of course. But it can relieve some of the stress for the parent left behind. If you’re a single parent, having life insurance is all the more important. No one wants their child to be left destitute.
For that matter, you probably don’t want to leave your kids unable to afford enriching experiences like music lessons and summer camp, either.
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Why do you need international life insurance?
Insurance policy costs and terms are complicated. Insurance carriers assume that you are at greater risk if you travel frequently and you may pay higher premiums than a policyholder who stays put.
If you buy life insurance in your native country and then take up residence abroad, it’s incumbent upon you to alert your insurance company that you’ve done so. It’s likely, at that point, that your rates will go up, particularly if you relocate to a country where disease is more common and medical care is less reliable.
If you fail to inform your insurer that you’ve changed your home country, they may deny your claim. Your survivors may not receive the death benefit you’ve been paying for all along.
What are the key benefits of our life insurance plans?
What are the benefits of international life insurance?
International life insurance policies from William Russell are designed for how you – the expat, digital nomad, or frequent traveler – live your life. It follows you wherever you go.
In other words, our policies don’t restrict you from feeding your wanderlust. Your location has no impact on the premiums you pay. Your age and health are the primary factors William Russell takes into account when determining your insurance rates.
We offer one-year term policies so you’re not locked into paying premiums for a lengthy period. You have the choice of whether to renew your policy each year. And you can choose the size of your policy, too: up to 20 times your annual salary up to a maximum of US$2 million. If you live the traveler’s lifestyle, you know how important flexibility is.
• Expat life insurance is considered a mainstay of an overall financial plan
• There are two main categories of life insurance: whole life and term life
• Term life insurance is an affordable solution, particularly when you’re young
• Term life insurance is customizable to match your life stage and meet your budget
• Term life insurance isn’t a life-long commitment. You can buy it only when you need it
• Life insurance is a must for parents
• The amount of life insurance you need depends on who you need to protect
Don’t leave anything to chance. Choose total peace of mind instead.
At William Russell, we have 30 years’ experience providing insurance exclusively to expatriates like you.
When you choose William Russell as your provider of international life insurance, you’ll know you’re in the safest possible hands. Trust William Russell to protect what’s precious. We’ve worked in over 200 countries, so we have the global expertise you can depend on.
Once you have asked yourself the essential questions in this guide, you will be close to deciding the type of policy that suits you. Do not hesitate to contact us today – we’ll be happy to help.
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