We're At The End Of Our Expat Blog Series, We've Come A Long Way!
This is Part 8 in our "Expat Blog Series" about life insurance...
So here we are, the last part of how as an expat you can calculate how much expat life cover you need.
Before we get into the nuts and bolts of today's post we wanted to talk about why this is important.
In our previous posts we looked how life insurance is more complicated for expats. Becoming an expat most likely means your existing life insurance stops working.
If you haven't figured this out already then here's some help in doing just that.
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!
Moving to another country and not having the right type of policy will mean that your cover won't work again.
The thing is no ones going to deal with this except you!
Nine out of ten offshore financial advisors aren't interested in life insurance. They only want to deal with investment because it's simpler to set up and more exciting to talk about.
If you speak to a local bank or financial advisor they don't understand the complexity of your situation.
Most importantly they don't have the correct solutions to deal with it either.
So, it's down to you...
What Have You Got (Assets)?
People get fixated about being over insured, though this is almost never the case. In fact it's most likely that the opposite is true.
So we’re going to help you make sure that your family have exactly what they need and you're not over insured.
So far we've shown you how to work out the gross life cover amount that you need. Now we want to look at your assets and offset them against that gross figure.
Let’s start by looking at some things that we’re not going to include in the asset list.
The first one and maybe the most surprising is your family home.
This may not seem fair considering we’ve included the mortgage in your liabilities.
The issue is that your family home isn’t really an asset as such.
Shocking!!! I know…
This is because your family are going to live in it and it won’t produce income that they can use.
You may get capital growth from it though you’re not going to get your hands on that unless you sell it or take on more debt.
Including the mortgage in the liabilities calculation means…

You’ve secured your family a home.
Also, you may have other physical assets such as art, cars, wine or antiques.
Anything that falls into this category isn't included in the calculation either.
Valuations on such assets can vary wildly over time. They can also take a long time to dispose of and it can be costly getting rid of them.
Also certain items may have sentimental value linked to them and your partner may want to keep them.
The aim of this is to make sure your loved ones have quick access to financial resources.
So, anything so specialised/niche isn't going to fulfil this criteria.
That's why we leave them out of the calculation.
Now, let’s move onto what you can include!
Investment Property
If you own other property for investment purposes then you should put these in your asset column.
Make sure that you' include any debt relating to these assets in your liabilities figure.
These assets can and should produce income for your family.
Income is far more important than any capital gains that they make. (You can only release these capital gains by selling the asset).
Profit taking isn't easy with property because the selling is a slow process.
What figure should you use in your calculation?
Well, the best one to would be the income that these properties produce.
(If you do use this income figure then deduct it from the annual income figure from earlier)
If your intention to sell the properties then you could use their value. Though you need to be careful with this because the sale price could be lower.
Pensions
You should definitely factor your pensions into the assets portion of the calculation.
Though you’ll need to be careful because not all pensions work in the same way, when it comes to beneficiary access.
Quick note is for anyone who finds financial terms baffling.
Defined contribution schemes - Are personal or company pensions that build a pot of money. You can then use this money to provide an income when you retire.
Any defined contribution schemes will pay the full value of the assets at that time, as a lump sum.

The pension administrator will pay this money to your nominated beneficiaries. This payment will be quick and it should be without any taxes.
Defined benefit schemes - Are company pension for the employees. It builds a fraction of your final salary each year that you work for your company. This fraction is usually 1/60 or 1/80 that accumulates towards your total pension at retirement.
A defined benefits scheme passes benefits on in a different way after the members death.
If the member has already retired when they die. Then there is usually a spouse's income which is payable. In most cases this would be half of the members income entitlement. And this is payable up until the death of the spouse.
If the member hasn’t retired when they pass away then there may be a lump-sum death benefit payable. This would come in the form of a multiple of the members current entitlement. Some schemes may also have a life insurance element which will pay out on the members death.
You should also factor in any state pension schemes that you have an entitlement to.
Though a word of warning the full entitlement may not pass to your dependents. It may be a reduced amount or in some cases nothing at all.
Check and then factor what is applicable into your calculation.
How do you deal with the different options in your calculation?
That is how do you factor in a capital payment as opposed to an ongoing income?
If your pension pays a lump-sum then add this to your total asset value.
Or, your spouse receives an ongoing income…
Then deduct this from the income figure that you've calculated for your family.
Death In Service Benefit
Your company may provide you with some life cover. This is payable to your nominated beneficiaries in the event of your death.
Should you include this into the assets section of your calculation?
That's up to you though...
Generally, we'd advise against it.
You may be scratching your head and asking why?
The reason for not including it is this...
What you get can change and you have no influence on that decision. Your company can change their benefits policy, when budgets need cutting then this is a quick fix.
The amount of benefit is usually a multiple of your salary.
Employers often move this up or down, depending on economic conditions.
Or you could move company and work elsewhere. Your new employer may not have such a generous corporate benefits package.
If you find yourself in either of these situations, then you're going to need to replace that cover. Though, in reality you won't do it which exposes your family to financial insecurity.
But, let's say that you've got your act together and you start to replace the life benefit that's been lost. There's another potential issue that you face.
If you've had a serious illness then you might not be able to set up a replacement life policy.
So, we believe that you should view death in service benefit as a bonus on top of the cover that your family needs.
Financial Assets
So what assets should you be including in your calculation?
We've already dealt with pensions and property so what else are we going to look at?

Let’s start with any liquid assets such as savings accounts or emergency funds. This is capital that would be available almost immediately to your partner.
That is if the accounts are in joint names, if not then they may have to go through probate.
So, these need adding to the asset side of your calculation, simple!
Forget about current accounts, they fluctuate too much to be meaningful.
What else?
Do you have any investment accounts?
Whether they're onshore or offshore add them to your assets list as well.
Company stock purchase schemes will also need adding into your assets total. (this is for Publicly Listed Companies (PLC). If the shares are in a private company then only include them in assets if there's a purchase agreement)
You can also add any life assurance policies to the list as well. These are investments provided by life companies. They have a minimal amount of life cover added to them for tax planning purposes.
These include offshore regular savings plans, endowments or life assurance bonds.
These assets could have large surrender charges applied, especially the offshore savings plans. So, it's best to get surrender values for each policy and use that figure in your calculation.
Again, you're going to add the their value into the assets part of your calculation.
Existing Life Insurance Policies
If you’re looking to top up your existing life insurance ( you've confirmed it still covers you). Then add the current value of your policy's death benefit into the assets list.
If you’re replacing your existing policies because it doesn't cover you anymore. Then, obviously this doesn’t apply because there's no benefit that's going to pay out.
Remember as an expat it’s pretty certain that any life cover you took out back home won’t keep covering you.
So it’s important that you replace it.
Financial Assumptions Expats Make That Cost You Big!
If you’re not sure then click on the link above and read or reread part 1 of this series.
Also if you haven't got 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!
Once you've established this then you know whether you can include it or leave it out.
If the remaining term on the policy is significantly less than the time you need cover for. You may need to think about whether you include it or not.
Right, that should be that, for assets I think we've covered pretty much everything.
It's time to move onto the next part, how we put the whole equation together.
The Calculation For Your Expat Life Cover
So, now you’ve got everything that's required to figure out how much life cover you need.
A list of liabilities, annual income needs and the usable assets that you own…
If there's income from investment property, spouses pension, partner's salary or another source. Then deduct this from the annual income needs total that you have.
Once you have that net annual income figure you can then work out the benefit sum to produce it. This will depend on the method you've chosen to produce that income...
If you've decided to use the drawdown method then the calculation looks like this.
Net Annual Income x No of Years Income Required = Total Income Benefit
If you've chosen the other method using the investment distributions for their income.
This is the formula that you'd use...
Net Annual Income x Income Percentage Rate = Total Income Benefit
It's worth remembering not to be overly aggressive with your income percentage rate. If you're too optimistic then they may struggle to produce the income and drawdown on capital.
Then total all the liabilities that you've got on your list.
Add the total for the liabilities and the total income benefit figures. This will give you the gross benefit figure that you need.
After that total the value of the assets that you've listed.
Next you're going to take that total asset figure away from the gross benefit figure.

This gives you the amount of life cover that you need.
Now, it's worth noting that if the figure that you get is a negative then you've got a surplus. That means the value of your assets are greater than your gross benefit figure.
If this is the case then technically you don't actually need life insurance.
That being said if this is due to a large property portfolio which has got loans against it.
And there aren't enough liquid assets to clear these loans.
Then you should set up your life cover to the value of the current outstanding loans.
As we mentioned before...
You don't want to leave your loved ones in a situation where they have to sell property to clear loans.
It can leave them in a very difficult situation struggling to make repayments on debt.
That’s Easy, Right?
Summary
So let’s wrap this up,
Generally, we'd recommend that any mortgages have specific life policies linked to them. This means that they run for the same terms.
Though, this is how you calculate how much life cover you should have in total. You can tweak the process to suite you.
We’ve tried to make it as simple as possible though we accept that this is relative.
For some of you it will be straightforward and for others it will be a complete mind ****.
We do this everyday so if we've overcomplicated this then we're sorry...
You may realise that you need life insurance. Though you don't have the time or inclination to go through this process. This means that you're doing nothing about it.
You shouldn't let this situation continue.
Well we've got some good news for you!
We've put together a life insurance calculator for you. It simplifies the whole process for you.
Enter the information and it’ll work it all out for you.
You’ll still need to know about pensions and financial assets though that isn’t a bad thing to take stock.
Finally if there’s something that we haven’t dealt with that applies to you then get in touch.
We’re more than happy to help.
Finally here's one more chance 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!
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