If you’re a British expat living outside the UK, it’s important to know your family are financially protected if something happens to you.
Here are 3 common mistakes expats make, and how to avoid them.
1. Not Checking if Your UK Policies Still Cover You Abroad
Last year I spoke with a family living in Asia who had received a serious cancer diagnosis.
When I asked them if they’d checked if their UK life insurance covered them living overseas, they answered:
“We have no idea.”
This really isn’t something you want to leave up to chance.
Many British expats expect their life insurance from the UK will still cover them when they live abroad.
But often, that’s not the case.
There’s a difference between simply travelling abroad (e.g. for a holiday), and moving to another country to live there long-term.
Many UK life insurance companies won’t provide cover once you’re living in another country.
But there aren’t any set rules. It depends on the insurance company and the specific policy you have.
What to do:
→ Never assume – always double-check.
→ Contact your UK life insurance provider and ask if your policy still covers you while living abroad.
2 – Using Whole of Life Insurance Instead of Term Insurance
There are two main types of life insurance:
Term Life Insurance:
✔️ Is lower cost.
✔️ Doesn’t contain any investment element, or cash in value – you only pay for the insurance.
✔️ Designed to cover a specific need, like replacing your salary, for a specific period of time (e.g. until your children leave home).
✔️ Will pay out directly to your beneficiaries on your death.
✔️ Can be written into trust, to mitigate Inheritance Tax.
✔️ Is easy to cancel, with no strings attached.
❌ Can’t be used to shelter investments from tax on growth or income.
Whole of Life Insurance:
✔️ Lasts for your whole life.
✔️ Contains an investment element, which is used to pay long-term insurance premiums.
✔️ May have a cash in value – depending on investment performance.
✔️ Will pay out directly to your beneficiaries on your death.
✔️ Can be used to shelter investments from tax on growth or income.
✔️ Can be written into trust, to mitigate Inheritance Tax
❌ Is unlikely to be the best option for most people looking to protect their family from loss of income.
❌ Is often high cost.
Term Life Insurance is usually the most suitable option for people looking to make sure their family will be financially ok, if something happens to them.
It’s less complex, more transparent and usually significantly lower cost.
Whole of Life Insurance is better suited to niche circumstances, like tax and estate planning.
3 – Not Understanding How Much Cover Is Enough
Few of the people I speak to really know if their insurance is enough, or even too much.
The might have £750,000 or even £1,500,000 in cover, worked out on a multiple of their salary.
But what they really want to understand is:
- Will my family have to worry about money?
- Will our debts be paid off?
- Can my children keep going to private school?
- Will my children have to pay for university?
- How long will it be until my spouse has to return to work?
- Will my partner have to juggle child-care and work?
- Will there be enough money, to help with the life events I always wanted to? Like a first car, or a deposit for a house?
Rather than just using a rule of thumb, the amount of insurance you need is best calculated using a defined list of things you want to know will be covered.
Then understanding what size of a lump sum you need to cover this.
If events are long-time away, the payout could be invested, meaning you might need less cover than if they all needed to be paid for tomorrow.
For many people a financial safety net for your family, can cost less than a cup of coffee a day.
If you found this useful, you might like our free 13 Step Financial Checklist for British expats living overseas.
Or if you’re looking for professional help with your life insurance, pensions & investments – click here to book your free initial consultation.
