Expat Financial Planning: Tips to Insure Against Risk
If you're lucky―and we certainly hope that you are―nothing will ever go seriously wrong for you and your family while you’re living overseas. But unfortunately, the reality for most of us is that at some point, something adverse will happen. Your spouse may lose their job, or your family business may fail. Someone could fall seriously ill, become disabled, or even die. While none of us wants or expects anything bad to happen, it's important that we nevertheless plan for the possibility.
Having adequate insurance coverage is one way to protect our families against the negative financial consequences of unfortunate events. Yet insurance is one area where we often see either gaps in an expatriate’s coverage or areas of insufficient coverage. While many expats have some employer-provided insurance, corporate group policies may be insufficient to meet a family's needs and could be of little use if the breadwinner is no longer employed at that company.
You also need to understand the terms of your expat policies and realize that the regulations governing them may not be the same or as stringent as in your home country. Poorly regulated or financially unrated firms risk insolvency, such as the recent case of Gibraltar’s Lamp Insurance, which specialized in health care, legal, and special lines insurance. It pays to read the fine print.
To help you make sure that your family has adequate protection against adverse events, we’ve listed the main types of insurance every expat household should consider along with some of the key features to watch out for. Pull out your existing insurance policies and review your coverage in light of the list below. Understand what you’re covered for and for how much. You can then determine whether you have any gaps that need to be addressed or areas where you need to bump up your coverage.
If you think you need additional insurance, contact several insurance providers, and review potential policies side-by-side according to the key variables for that type of insurance. Insurance agents or brokers are there to help you, but be aware that they may be representing interests other than yours. You will need to do some homework and be prepared to ask the right questions to ensure you’re getting the type and amount of insurance coverage you need.
As a final note, if you decide to replace a policy, don’t give up a policy you already own until you have obtained new coverage.
Health Insurance
Health insurance is your first priority and is one area you should not skimp on. To keep premiums affordable, elect for a high annual deductible on a comprehensive policy. You want to cover the major medical expenses, not every cough and sniffle.
Policies available to expats can range from the pretty good to those that offer little more than glorified travel insurance. Few, if any, will approach the coverage and protections of a national health insurance scheme. These considerations may not be a big concern for nationalities that can repatriate to their home countries and plug back into their national health systems. But for long-term expatriates and Americans, obtaining an adequate policy is critical.
Some key considerations: What are the annual and total policies limits per family? Per person? Are there limits on specific types of treatment or conditions? Know the difference between chronic and acute conditions. Does the policy cover chronic conditions? What is considered a chronic condition? Does the policy cover pre-existing conditions after an exclusion period or not at all? What conditions are excluded?
What are the deductibles (excesses)? Are they per year or per claim? Is it a family deductible or per person? Is the policy guaranteed renewable as long as you pay the premium? Under what conditions can the insurer cancel the policy? Can policies be canceled on an individual basis?
If you are covered by your employer, what happens if you are no longer employed? Can you convert to an individual policy without proving insurability?
Life Insurance
If someone is dependent on your income, you need life insurance. If not, you generally don't. You also don't need life insurance on your kids. Remember, the point of life insurance for most expats is to replace income if the policyholder dies. As for the type of coverage, most expats only need a term policy, not a cash value, permanent, or investment-linked policy. Using life insurance as a vehicle for saving and investing is not generally a good idea.
Some key considerations: How long does the policy need to be in force? How much insurance do you need? Are the premiums level for the total insurance period, or do they increase annually? Can you reduce coverage as your insurance needs decline? What’s required if you need to increase coverage? Is the policy guaranteed renewable annually as long as the premiums are paid? Can you convert the policy to a permanent policy without proving insurability again?
For a work-provided policy, what happens if you leave your employer? Can you convert your corporate policy to an individual policy without proving insurability? What happens to the premiums if you convert to an individual policy?
For additional information, see “Expat Financial Advice: Eight Questions to Ask Before Buying Life Insurance.”
Disability Insurance
Disability insurance is one area where many expats are lacking. Some employers provide disability insurance, but many don't. And of those that do, many polices cover only short-term disability or become prohibitively expensive for long-term or catastrophic disabilities. This is an area you will likely have to cover yourself as an expat or negotiate with your employer to pick up the premiums.
Some key considerations: How much income is replaced? Ideally, you want at least 70%. How long will the benefits be paid? For a long-term policy, you want coverage at least to age 65. How is disability defined? Is the coverage for "owner's own occupation" or any "suitable occupation"? You want to avoid a policy that only pays benefits if you are unable to work in any occupation.
Is the policy guaranteed renewable as long as you continue to pay the premiums? Under what terms can the policy be canceled? How long is the elimination period, or the time you need to wait before benefits kick in?
Long-Term Care Insurance
Long-term care insurance is a relatively new type of insurance and is not available in all countries. Where it is available, long-term care insurance covers the cost of nursing home care and a variety of home-based nursing care. This type of care can be expensive, with residency in a nursing home costing between USD 50,000 and USD 100,000 per year depending on the area. These expenses are not typically covered by health insurance or other types of insurance.
Generally, you would start to consider this type of insurance when you are between 50 and 60 years old to keep premiums reasonable and to avoid being denied coverage for pre-existing conditions. If you're considering buying a policy, check that your insurer has been in the LTC business for at least 15 years and has a strong rating by several insurance rating agencies.
Some key considerations: Will the policy cover you in your country of residence? Policies may not be available in all markets, and many policies will not cover you outside the country of issuance. What services are covered? What requirements need to be met before coverage kicks in? How long will the coverage last? The average stay in a nursing home is three years.
How much coverage do you need? Check the costs of nursing home care in the area you will use it. Consider other sources of income. Is there an annual inflation adjustment? You'll want 5% compounded (not simple) if you are under the age of 70 to keep up with health care cost inflation. How long is the elimination or waiting period before benefits kick in? What is the insurer’s history of premium increases?
Conclusion
We've discussed some of the major types of insurance that all expat families should consider. In addition, you will need to ensure you have adequate homeowners or renters insurance and auto insurance.
Consider umbrella liability insurance, which is usually attached to a homeowners policy and relatively inexpensive, to cover accidents that occur on property you own or rent as well as covering automobile accident claims. Expats who are professionals, entrepreneurs, or business owners may need other types of insurance as well.
Having the right amount of insurance coverage is an essential part of your financial planning and critical to ensuring the security of your family. Make sure you have the right types and amounts of coverage. Do your homework and ask questions. This is not an area where you want to make assumptions or rely on a benevolent salesperson.
This is an updated version of a blog that appeared previously on www.crevelingandcreveling.com.
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. The firm is a Registered Investment Adviser with the U.S. SEC and is licensed and regulated by the Thai SEC. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future.
Copyright © 2019 Creveling & Creveling Private Wealth Advisory, All rights reserved. The articles and writings are not recommendations or solicitations, and guest articles express the opinion of the author; which may or may not reflect the views of Creveling & Creveling.