Welcome to my video series, where we explore the key personal finance topics for Australians at home and abroad. Today, we’re talking about life insurance and how much you should have in place as an Australian expat.
The Importance of Life Insurance
Unfortunately, it’s a very sad reality that most people will only discover the true value and the importance of life insurance when someone they know or love has been through the process of making a claim themselves, or they’ve found that the cover that they thought they had wasn’t actually valid because they were living overseas.
When I look at my own personal financial plan, one of the most important elements, and it may not be the most exciting, but it’s my term life insurance plan. As I hold investment properties back in Australia, I want to ensure that there’s enough insurance there (touch wood), should something ever happen to me, so that the debt and the mortgages can be repaid. In future, if and when I have children, then I’ll look to increase my life insurance to ensure that their education would be covered.
Let’s get into how much cover you should have in place and how to determine which is the right policy for you.
Do I Actually Need Life Insurance..?
A common question I’m asked is ‘do I actually need any life insurance..?’ Generally speaking, there’s a very simple rule of thumb that you can use to assess whether you actually need cover. That is ‘in the event that unforeseen circumstances happen, and you do pass away, would there be family or loved ones that would be left to face the financial burden of needing to continue to cover expenses, cover mortgage repayments, etc. If the answer is yes, then it’s time to at the very least explore whether it’s sensible to actually have insurance in place.
What Should You Be Covering..?
When it comes to deciding how much cover you should have in place, there are five key points to keep in mind.
1. Repay mortgages and housing loans
The first is to ensure that any forced property sales could be avoided. Having enough life insurance in place to ensure that your family could repay any mortgages is generally a sensible idea.
2. Replace your income for 2 – 4 years
The second is to ensure that you can replace your income or annual expenses for a period of between 2 – 4 years depending on your own situation and if your surviving partner and family members could continue to work and derive an income.
3. Cover your children/’s education costs
The third is to ensure that the remaining education and school fees for your children could actually be covered. I would generally suggest looking to cover the remainder of their school fees depending on whether they’re going to private school or public school and what you assume those expenses to be.
4. Paying for your funeral expenses
The fourth is to ensure that funeral costs could also be covered. A funeral on average will set you back between $10,000 to $15,000 but it is important to look at any special requirements and what costs could be involved.
5. Pay for relocation costs of your surviving family members
The fifth and a very important one for Australian expats in Singapore, or wherever you happen to be located, is to consider whether your family would move back to Australia in the event of your passing. If the answer is yes, then you’ll want to ensure that there’s enough money to cover that cost. On average, that’s going to be between $25,000 and $50,000, so an important one to be mindful of.
Is there anything else to cover..?
Outside of these 5 key items, it’s important to consider whether there’s any other costs that would need to be covered in the event of your passing, and therefore adjust your life insurance amount accordingly.
What Do I Do Next?
Now that we know what factors are important to consider how much life insurance we should have as an Australian expat, let’s briefly look at some of the most common mistakes that we see expats make.
1. Assuming my employer cover is enough
The first common mistake that we see made is assuming that your employer cover will be enough. There are a couple of issues with this, and this includes if you ever leave your employer and try to get life cover at a later age, if you relocate and your existing cover doesn’t actually cover you offshore, if the policy conflicts with any other insurance policies that you have in place, and what the terms of claim actually are. If you do have cover with your employer, it’s important to assess how it’s currently structured, and whether it’s sufficient.
2. Assuming my insurance inside superannuation is sufficient
The second common mistake is the phrase ‘I already have cover in place in my superannuation account’. Many Australians will and in some cases, this will be enough, however we’re often faced with the issue far too often that many Australian expats, while they do hold insurance inside their super fund, are not actually covered while they’re living offshore.
It’s important to look at how your policy is structured, where you’re actually covered and how much you’re paying for that insurance, because you may find that now that you’re not contributing to your super fund that a large chunk of that is getting eaten away in insurance premiums, so an important one to explore.
3. Assuming I don’t need cover because I’m not working
The third common mistake is assuming that because you don’t work, you don’t need any life insurance in place. We see this situation quite commonly in Singapore with Australian expat families, where one family member will be the sole breadwinner and the other will be looking after the family.
We often find that the mistake made is discounting the cost that it would actually require to replace everything that the non-working spouse does. It’s important to look at what cover you should have in place, and just ensure that there are no unexpected surprises down the track.
4. “Who cares…I’ll be gone”
The fourth common mistake that we see Australian expats making when it comes to their life insurance is the saying ‘who cares…I’ll be gone’. In some cases, this is perfectly fair enough. If you have no dependants, no family members reliant on your income, this may not be a terrible approach. You may genuinely have no need for life insurance.
However, if you will be leaving loved ones behind, in the unexpected event that something were to happen, it’s important to consider whether you’d like to cover them, what aspects you’d like to cover, and ensure that you’ve done your research and considered your options.
What type of life insurance do I actually need?
Now that we’ve worked out how much life insurance we should have in place, we’ve avoided the common mistakes often made, it’s now time to consider what type of life insurance policy is right for us.
There is no ‘one-size-fits-all’ so it’s important to consider your options. Whether it be a term life policy, an investment-linked policy, a universal life policy…there are many different options to consider. I would recommend sitting down with your Adviser, seeking professional guidance, who can consider your own situation and your own goals, and point you in the right direction.
If you have any questions at all about your own life insurance, whether you have cover in place already, or are currently considering what you should put in place, feel free to reach out to me, I’d be happy to assist.
If you have any other personal finance topics that you’d like me to consider, or any questions when it comes to personal finance that you’d like to explore for a future video, reach out and let me know, I’d be more than happy to consider it.
Thank you and see you next time.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.