It's commonplace for expats to insure their homes and contents, cars and prized possessions and even their pets against many eventualities. They do this because they value whatever they have insured, or more accurately, they value saving themselves _ or at least mitigating _ the inconvenience and upset of having to deal with its loss or in the case of a personal belonging, it being damaged. They go to this trouble to ensure that their lives will remain as stable as possible in the event of an accident, theft or act of God.
However, many people rarely adequately insure themselves against loss of earnings through disability or even loss of life. Is this a simple oversight, or is it because we all want to feel that such things will never happen to us?
Surely everyone wants to provide for the family they would leave behind in the event of an untimely demise. But when it comes to deciding on insurance coverage, most people find reasons to avoid or postpone making these decisions.
It's all too easy to put them off until tomorrow or whenever ''the time is right'', but as any bereaved family member or breadwinner who has suffered a heart attack will tell you, the ''right'' time is now. None of us can know what's around the corner or predict with any accuracy events that may render us uninsurable in the future.
When I ask expats to describe the standard of living they would want for their families if, say, the next flight they are on goes down, they often shrug their shoulders and look at me blankly. Some have vague ideas that are usually inadequate. They might say that perhaps US$250,000 (7.51 million baht) would be more than enough for the family.
So how do you arrive at the ideal level of insurance coverage? The best way is to do the appropriate caculations. This may seem a little morbid, or tiresome, but it is essential to ensure that you are leaving adequate provisions for the family you may leave behind.
Do you have any mortgages, loans or other debts? These would need to be cleared immediately if the worst happened or your family will inherit your debt. What level of income do you feel you would need to leave for your family? Have you thought about school and university fees and associated living costs for the children? What about your spouse and her/his living expense requirements? These are all important considerations.
When looking at these factors, you also need to take into account inflation and the way it will affect the family in the long term.
Let's take a hypothetical case. Gordon is a 36-year-old expat who is celebrating the birth of his second child. He is a successful executive in the oil industry and has been an expat for eight years. He is set to remain abroad for a long while and will retire abroad if possible. He is married to Rosalind, a 32-year-old Thai woman.
Gordon knows he needs to plan for the future of Rosalind and their children in case he is not here to take financial responsibility for them, but he's not sure how to start calculating these needs. So he decides to seek professional assistance.
Gordon meets with his financial adviser to discuss a financial protection programme for himself and his family. They consider two major possibilities. The first is death and the second permanent disability. Gordon earns about $180,000 per year and it is likely that he will secure promotions in the future as well as receive incremental salary increases. He believes that if he suffers an untimely death, his family will need support as outlined in the table on this page.
As you can see, the table deals with future requirements on a conservative basis. It assumes a reasonable standard of living and realistic future costs for the family, including education for the children. It may come as a shock for many to think that this would be the amount required to care for their loved ones if they passed on.
Notice that the amount Gordon and his adviser calculate as adequate for Rosalind to live on is reduced after the children leave home for university. Of course, this is inflated from today's prices to the time it will be required in the future.
For those who feel that $100,000, $250,000 or even $500,000 is adequate, please think again. To put it in perspective, if Gordon follows a reasonable career path and is promoted a couple of times on the way, from now until the age of 60 he would earn somewhere around $9 million.
The cost of life insurance at the level of $3 million for a man of 36 is likely to be less than $3,500 per year. Please bear in mind that life insurance needs to be underwritten individually. This is just a guide and assumes, for instance, that the applicant is a non-smoker in good health.
Of course, Gordon's assets are likely to increase, and so he will also discuss with his adviser a plan that has some flexibility in reduction of sums assured and resulting premiums as time moves forward. This would need to be evaluated and reviewed each year. Gordon is happy that he has someone who can assist in this matter.
So what happens if Gordon were to be involved in a terrible accident or contract a critical illness, leaving him disabled and unable to work again?
Coverage for this eventuality would require a separate insurance known as salary continuance, at an additional cost. Currently, the most common coverage allows for continuation of 75% of current salary, up to a maximum of about $140,000 per year. At this level, Gordon would be paying premiums of just less than $3,000 per year.
Some may regard these premiums as expensive, but they are not such a large portion of Gordon's total earnings. The longer he puts it off, the higher the premiums will get _ and the longer he and his family will be without coverage.
It is important to consider the alternative to taking on the effort and expense of insurance. If Gordon did pass away or become disabled, he would be leaving his family to cope with disastrous circumstances. Apart from the emotional turmoil, they would also be in financial peril.
If you feel that insurance is a sensible option, then surely you ought to consider insuring your most valuable asset of all _ yourself.
Questions to the writer can be directed to PFS International on 02-6531971 or emailed to
Did you know?
You can subscribe to free e-newsletters and receive e-mail alerts when other people leave comments in articles after you did. Click here to take full advantage of the alerts!
No comments:
Post a Comment