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How To Calculate Your Expat Life Cover! Know How Much Income Your family needs

Clive Macdonald

What We've Looked At So Far

Expat Life cover

So far we've looked at the "Multiple of Salary" method to calculate life insurance benefit.


We acknowledged it's simplicity and also highlighted the shortcomings when using it.


Then we started to take a look at the "Real Life Benefit Requirement"method. This is a way of calculating your expat life cover benefit so that it reflects your actual needs.


There are three areas that we focus on with this method. These are Liabilities, Family Income Needs and Assets.


In the last part we went on to look at what makes up Liabilities.


We started with debts. Whether it's a mortgage, loan or credit cards they need paying even if you're not around.


That's because they end up falling on your family if they're not paid. And if they don't have the resources to clear them, then they'll have to continue making repayments.


Then we highlighted what happens if your family don't have the money to make repayments. That is the loan falls into arrears which means extra interest & penalties on the loan.


As this continues, the debt will then fall into default and assets get repossessed.


This could leave your family homeless or without transport. What it would also mean is that they struggle to get credit in the future. At best it's going to be very expensive if they do find an organisation willing to lend to them.


We also highlighted why selling assets to clear the isn't a good option. That's because it still leaves your family financially exposed.


They still have the debt repayments and if it takes a long time to sell the asset then this is problematic. Also if asset prices fall then they may not have as much or even enough capital.


Having debts covered with life insurance stops all this from happening. It puts your family back in control and gives them choices.


The other aspect of liabilities that we looked at was how much it costs to raise your kids.


We asked how do you want to educate them?


Is that through private education or the public school system?


Do you want to make money available to help them through tertiary education?


Then there's things like childcare


We looked at the estimated annual cost of raising a child. Then, we gave you an indication of a number that you might want to use. Though your's may be different because of lifestyle, additional needs or location.


OK, that's a pretty thorough review of last weeks post...


It's time to move onto the next part of our calculation, but first


Here's another opportunity to get your copy of our...


"Expat Life Insurance Confirmation Pack".


It's completely FREE and has resources to help you confirm your life cover still works. Plus it gives you a step buy step guide of how to do that and gives you questions that you should be asking.


So CLICK the image below and get your's NOW!

Life Insurance For Expat Families

Now It's time to take a look at...


Family Income Needs

Expat Life Cover To Replace Your Income

Let's start this off by saying a lot depends on whether your partner works or not. If they don't then replacing your income is very important.


If your partner does work then some of this section is going to be relevant. Though the next part "What about your partners income?" is very relevant to you.


So you need to determine how much annual income your family would need. You also want to decide how long they’ll need it for.


What we’ve done so far is make sure the family home is mortgage free.


We’ve taken care of the kids education costs and expenses.


So what your family needs to live on has reduced.


According to the Office For National Statistics (ONS) the average household weekly spend was £528.80 at the end of 2022. Since then inflation has been running in double digits.


So, by the beginning of 2024 UK households are probably spending on average over £600 per week. And doesn’t include local taxes or mortgage repayments so as a guide this is a useful basis to work from.

Expat Life Cover

There will be differences from one family to another, you’ll have to tweak it to suite you.


 Also it could work out that in the first few years your family would need more money. For example if your kids aren't in full time eduction.


Your partner will find it more difficult to work or generate as much income. If your kids are older then this isn't such an issue because your partner may be able to work full time.


It's worth noting that we're planning for right now. If the unthinkable were to happen tomorrow then you're making sure your family are set.


That's your worst case scenario!


So, how do we get this income into our calculation?


How are you going to produce this income for you family using the life insurance?

 Well you've got a couple of options available to you...


First up is working out how much income they're going to need in total. So, once you know how much income you need to provide in today's terms. You then multiply that figure by the number of years it's needed for and that's the figure you include.


You're providing all the income that they need in one chunk. Each year your partner would then drawdown the capital and use it as income.


Now you might be saying what about inflation?


It's a very good question, though we're of the mind that you can ignore it.


Why?


Your worst case scenario is something happening to you right now. The money you've allocated for the current year will get withdrawn and used. The rest of the money can gets invested. The ongoing return on that whole capital sum offsets inflation.


If nothing happens to you now then each year the capital for that year doesn't get used. If anything happens to you that money's still available. This will then deal with the impact of inflation on your families income needs.


Got it?


Life Insurance For Expats

Having said that there's an issue with this method of providing income for your family.


The resource that you're looking to provide is finite. You're giving them so many years of income and once it's drawn down and spent there's no money left.


So, what happens when that money runs out?


It may not be an issue if the kids have grown up and the surviving partner's working.


If there's dependent kids or a partner has limited earnings potential. Well this makes things much more complicated.  


In that case you could have loved ones struggling to get by.


Another way of generating income is to provide a capital sum that gets invested. Though this time with a different purpose in mind.


The dividends and distributions the investments produce will be income for your family.  


Let’s assume your family requires £30,000 per year. They can get a 4% per annum income from this capital which means you'd need a sum of £750,000.   


The benefit of this method is that there is always going to be capital to generate income.


Growth on the investment (you're only taking income from assets) helps offset inflation. 


The downside is that for shorter cover periods a larger benefit amount is needed. This is in comparison to the previous method that we just highlighted.


This then means that the premium will be a bit higher.


The null point on these two methods will be around 25 years.


Both of these methods are acceptable and which one you choose is down to your own circumstances.


Once you’ve done this you’ve got the gross amount of cover that you’re going to need…


You’ve got that, Right?


What About Your Partners Income?

Well there's two sides to this...


One is the impact that losing your partners income would have on you.


The other is how you deal with your partners income in your life cover calculation.


Let's deal with the impact of losing your partners income first...


If only one partner is working then losing their income would be devastating.


If both are working then the financial impact won't be as hard though it’s still an issue.


How big that impact is depends on the difference in the income levels between the two of you.


If your partners income is the same as yours or greater then you should complete this exercise for both of you.


If their income is considerably less than yours then what should you do?


Whether you need to completely replace the lost income or not depends on how reliant you are upon it. If your family is going to struggle without it then you need to make a provision for it.


If both parents are working then there's going to be some kind of childcare arrangements. These will become even more important if there's only one parent.


So making sure that there's extra resources to pay for it is important.

 If you don't want to replace the other partners income in full then provide for the cost of childcare only.


Though you'll need to have a think about where that's going to be. Childcare in Malaysia or Thailand is going to be much cheaper than London for example.


Again the same options for calculating the cover amount apply.


Whether you're going through the whole process with your partner or the lite version. You should always have separate policies for each partner.


So, once you've worked out how much cover you need for this...


Then set up a separate policy on the other partners life for that amount.


In a moment we're going to look at how your partners income impacts your life cover calculation.


Before we do that...


If you haven't got it already then here's another opportunity to get your copy of our...


"Expat Life Insurance Confirmation Pack".


It's completely FREE and has resources to help you confirm your life cover still works. Plus it gives you a step buy step guide of how to do that and gives you questions that you should be asking.


So CLICK the image below and get your's NOW!

Expat Life Cover

So if your partner's working and bringing an income into the family. This means that the family isn't as dependent on yours.


Again, given that we've dealt with debt and the money needed to raise the kids.


You'll need to look at how much income your partner produces.


Do they generate enough to meet those income needs?


Would they have anything leftover at the end of each month or would they be able to put money away?


You've determined how much income your family is going to need. So, you can offset your partners income against that so you can adjust your cover.


If there's a monthly shortfall in your families income then that's what you need to provide.


For example if your family needed and income of £4,000 per month. Your partner was going to bring home net £3,000 per month.


There's £1,000 per months shortfall and that's what you need to make up with life insurance. And let's say that's for another 18 years then your figures are going to look something like this.


£12,000 X 18 = £216,000


or


£12,000/4% = £300,000


If there's a big surplus then you may decide that you don't want to include an income element to your cover.


That's it for today...


Next week we'll be moving onto your assets, what to include and how to offset them against your cover.


Then we'll look at how you put all the elements together. By the end of next weeks post you'll be able to complete the calculation and figure out how much life cover you need.


And finally here's another opportunity to get a copy of our...


"Expat Life Insurance Confirmation Pack".


It's completely FREE and has resources to help you confirm your life cover still works. Plus it gives you a step buy step guide of how to do that and gives you questions that you should be asking.


So CLICK the image below and get your's NOW!


Until then, Bye!

Life Cover For Expat Families

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