Are you neglecting your life insurance requirements and putting your family at risk?
Written by Jamie Bubb-Sacklyn on November 19, 2018.
It’s always interesting to pick up on common themes that come up in my client review meetings. One thing that I have noticed a lot recently is that while most people keep a close eye on the wealth creation side of things, and regularly review how their assets are performing, wealth protection is often neglected.
Protecting your wealth should be a fundamental part of your financial plan which is why I always take the time to discuss this with clients. This is fortunate as I often find that they have no, or insufficient, protection in place. This puts their families at financial risk if something unexpected were to happen to them, namely a gaping hole in monthly finances.
The main way of protecting wealth is life insurance. There are other types of protective insurance which are often also highly recommended - critical illness cover and income protection in particular – but for the purposes of this article, I’m going to concentrate on life insurance.
The first mistake many expats make is to assume that cover from back home remains valid when you relocate abroad. This is, more often than not, false. Don’t make any assumptions – check with your insurer what the terms of your policy are and whether it has been invalidated by your move. Chances are that you will need to take out new cover adapted to your changed circumstances.
Talking of changes, another common mistake is to fail to keep life insurance cover in line with your actual requirements. Getting married, having a child and buying a home are just some of the events which will necessitate an increase in insurance. A regular life insurance review is crucial.
The worst mistake of all, of course, is to not have any life insurance. If this is you, it’s something that you need to rectify as soon as possible. If you’re not sure where to start working out how much life insurance you need, here’s a simple outline of the figures to take into account:
• Balance to pay on your mortgage
• Balance of any other unpaid debts
• Income replacement needs to support your family until they finish school (annual income x number of years)
• Pension income requirements for your spouse
• Total cost of fees and living expenses to put your children through higher education
• Estimate of your funeral expenses (not nice I know but if anything were to happen to you having this sorted takes one problem off the shoulders of grieving families)
Add up these amounts and then deduct any savings accumulated as well as any existing life insurance policies you have (through work or otherwise) and voilà, the amount of life insurance that you need.
One final mistake many families make is only insuring the family breadwinner. If you have children, both parents need some kind of cover even if they are not currently active earners. Why? Well, just imagine having to pay someone to do all the tasks a stay-at-home parent undertakes over the course of a day. Salary.com have tried to put a value on this and have come up with the figure of $162,581 for 2018!
It’s really important to put a realistic value on your life insurance needs now as underestimating this figure could be really costly down the line – you get a much better rate when you are younger. I sometimes recommend multiple, smaller policies to clients rather than one big one as this tailors cover to their specific needs. For example, one policy might cover the children until they become financially independent while the second is designed to cover a spouse until retirement.
I appreciate that for many people this is not an easy subject to tackle but it’s second nature to me as a financial planner. If you’re worrying about your life insurance requirements and calculations, why not get in touch for some professional help with putting in place adequate wealth protection for your family? I can give you peace of mind that you’ve got life insurance nailed, please get in touch with me at email@example.com.