“I'm a big crier in general. The right life insurance commercial will take me out for a couple of days.” - Ike Barinholtz
Having a life insurance policy in place can provide peace of mind for you and your loved ones should you unexpectedly pass away. However, the situation is often nuanced for expats, and should be carefully considered.
There are many several types of life insurance available, each with its own advantages and disadvantages. In this article, we’ll outline the different types of life insurance available to expats, and the factors you should consider when choosing a plan as an expat.
Specifically, in this article we’ll look at:
• The merits of life insurance
• Should Americans living abroad purchase life insurance?
• Types of life insurance
The merits of life insurance
The fundamental purpose and benefit of having life insurance is that it provides protection to your loved ones if you unexpectedly pass away. The reassurance that all of your financial commitments would be taken care of, and that they wouldn’t have to deal with any financial challenges while grieving, is significant.
Life insurance plans can also provide tax advantages for the policyholder and the beneficiaries, as premiums paid into a life insurance policy are deductible on tax returns, while the payout is typically not subject to taxation, either.
Another possible benefit of some life insurance policies is that there can be an investment component. Sometimes known as the ‘cash value’, the investment component allows you to save in a tax deferred way that can either be drawn as income during retirement, or passed on to your heirs, with US tax only payable when withdrawn.
However, the first step for expats should be an informed analysis of whether you need it or whether it makes more sense to build your wealth through investing.
Should Americans living abroad purchase life insurance?
The first consideration when thinking about whether you need life insurance as an expat is how long you will be abroad for.
If you are abroad on a work placement with a US employer, they may provide life insurance as part of your package. Or, if you are only planning to live abroad for a finite time before returning to the US, it makes sense to purchase and retain a US life insurance policy before you move abroad.
This is because life insurance costs much less in the US (where it is a state regulated product) compared to in most other countries.
If you have settled abroad permanently, there may be good life insurance options in your new country.
Another option for expats is international life insurance, however this is typically an expensive option.
Most often, life insurance is useful to cover a particular cost should you pass away unexpectedly, such as to pay off a mortgage, for example. The merits of this need to be balanced against whether it may make more sense to increase the amount you invest each month, instead.
It is certainly worth discussing the relative merits of purchasing life insurance as an expat with your expat financial advisor at the earliest opportunity to determine the best course for you.
Should you and your financial advisor agree that it makes sense for you to purchase life insurance as part of your wider financial plan, you will have to consider:
The coverage amount: The level of coverage you need is one of the most important choices you’ll have to make. This is the amount that will be paid out if you pass away. You’ll want to ensure that your policy offers enough coverage to fulfill your financial commitments and care for the people you love.
The length of the term: The length of the policy's term is another important factor to think about. Life insurance contracts can have many different term lengths, most often between five and thirty years. You should choose a term length that’s compatible with your wider financial goals.
Premiums: The amount you pay for your life insurance coverage each month is known as the premium. When selecting an insurance plan, it is essential to consider the current premium cost and also how it will develop throughout the policy, to ensure the policy is affordable for the whole term length.
Policy options: Different life insurance plans come with different policy options and features. For example, some plans feature a monetary value component, while others offer the option to change the plan type later. Take some time to think about what options and features are relevant for you.
Types of life insurance
If you are going to purchase life insurance, there are several different types available. Again, discuss them with your expat financial advisor to ensure that any insurance you purchase will help you achieve your wider financial goals.
Term life insurance: A term life insurance plan offers coverage for a set term, normally up to thirty years. Term life insurance is often a relatively inexpensive option, and it is frequently utilized to cover particular monetary commitments, such as a mortgage, or your children’s education expenses.
Whole life insurance: Whole life insurance offers coverage for the whole of the policyholder's life and includes a savings or investment component, often known as the cash value. Whole life insurance policies are also known as permanent life insurance. The premiums for this kind of coverage are typically higher than those for term life insurance, as there will definitely be a payout at some point. However, whole life insurance plans come with the advantage of building the cash value, which can then be used to supplement income during retirement.
Universal life insurance: Universal life insurance is a type of flexible policy that offers the benefits of both term life insurance and whole life insurance. This is because the policyholder can make changes to the coverage amount and the premium payments throughout the term. Universal life insurance is a good option for expats who wish to have greater control over their life insurance coverage.
Variable life insurance: Variable life insurance allows the policyholder to invest the policy's cash value component in one of a number of specified investment options. Expats with a higher risk tolerance who are at ease with the thought of having their cash value invested in stocks might consider a variable life policy, such as younger expats with no health issues, for example.
Wrapping up
Life insurance can offer peace of mind, however it doesn’t always make sense for Americans living overseas, as the cost as an international individual can outweigh the benefit unless you already purchased it in the States before emigrating. If you’re unsure, seek advice and carefully consider whether it will help you best achieve your financial goals.
If you have any questions, don't hesitate to contact us.
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