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Investors Offshore Editorial Team, December, 2012, 21 December, 2012
Insurance is one of those things that everyone hopes they'll never need, and as a result, a frightening number choose to bury their heads in the sand, hoping that their luck will hold. However, by far the most sensible solution for those not willing to trust to fate, is to take out some form of insurance, to protect themselves and their dependants should the worst happen.
The list of places you may be sent - or even choose to go - gets longer every day, ranging from fully civilized and safe places like Paris to really scary and hostile regions such as Iraq and Afghanistan. The list of possible (and insurable) contingencies is almost as long, including kidnap and ransom, war risk, health insurance, accident, liability and travel insurance.
However, it was revealed in the results of a survey by expat insurance specialist William Russell, published in May 2012, that the majority of expatriates are taking the risk of not having any life or income protection insurance in place.
The William Russell survey was completed by over 650 expatriate policyholders from all parts of the world. When health insurance clients were asked whether they had any life or income protection insurance in place, with any insurer, 61.4% of respondents indicated that they didn’t, with a further 5.7% saying they were unsure. Only 32.9% of those questioned had life and/or income protection insurance.
Conversely, when life and income protection insurance clients were questioned about their health insurance arrangements, just under 70% said they had health insurance in place, with a further 7.4% saying they were unsure. The results of the survey suggest that expatriates are far more likely to insure their health than make financial provision for either their untimely death, or the risk of their being unable to work due to an illness or injury.
Of the findings, James Cooper, Sales Director at William Russell, said: “Although we are pleased to see that a high number of expatriates are making provision against the risk of needing expensive medical treatment whilst they’re abroad, it is worrying to see how many expatriates are not making financial provision in the event of their untimely death, or an illness or accident that would prevent them from working.”
Inez Cooper, Managing Director at William Russell, adds: “We would certainly encourage insurance brokers and Financial Advisers to advise and inform their expatriate clients about the risks of being uninsured. When examining the need for life insurance, the obvious question is how would the family cope financially without its breadwinner? When examining the need for Income Protection insurance, the question of how long their employer would continue to pay them throughout a long period of sick leave needs to be asked, or if they are self-employed and unable to work, for how long could they rely on their savings? With the answers to these simple questions, an insurance solution can be found that will protect families today and into the future.”
Now your company may have taken out a policy on your behalf. If so, lucky you! Although insurance providers and brokers do offer corporate or group policies for international employers (in addition to individual international policies), the take-up by companies is not as high as it once was, nor indeed as perhaps it should be. Some companies seem to feel that it is not cost effective to provide a decent benefits package for more junior expatriates, preferring to compensate them instead with higher wages and expenses, but they might do better to consider that, for an expat, the knowledge that they can turn to their employers for help in times of crisis might sometimes be a more valuable benefit than a slightly inflated pay packet.
There are in fact still many companies that do recognise the importance of insuring all of their travelling employees. Companies that do so will usually look at an international package as opposed to taking out policies for their expatriate employees with local organisations, as the latter can be problematic. Local insurance regulatory regimes can be overly restrictive or exclusive, there may be foreign currency restrictions which prevent expats from receiving benefits in stable currencies such as US dollars, and membership of a local scheme may not be possible for some employees due to the proposed length of their stay.
However, in some parts of the world employers have no choice in the matter. In mid-2006, for instance, the Abu Dhabi brought in the first phase of a compulsory health insurance regime for employers. UAE employers are now responsible for providing health insurance for employees and their direct family including wife and three children below 18 years of age. Initially, the regime applied to companies with more than 1,000 employees, but from January, 2007, it was extended to all expatriates residing and working in the emirate. After many delays, the scheme is soon expected to be extended to Dubai. At the time of writing, this is slated to happen in 2013.
In Singapore, the Ministry of Manpower began requiring employers to purchase and maintain insurance for the medical expenses of foreign workers from 1 January 2008. At the same time, the Ministry of Health withdrew its program of healthcare subsidies for foreigners. The new requirement applies to all new and existing foreign workers on Work Permits or S Passes and to all foreign domestic workers.
Other countries which have introduced compulsory health insurance for expatriates include Saudi Arabia, Oman, Bahrain and Vietnam.
Of course, the levels of benefit offered may not seem high enough for you, so you may want to supplement such mandatory cover where it exists. Whether you are completely on your own, or supplementing your employer's cover, you can take advantage of a multitude of international brokers and insurers, and nowadays of course you can obtain cover through the Internet wherever you are.
The bottom line is that whether you are looking for private health and life insurance, or whether you are lucky enough to have found a forward thinking employer who is willing to include insurance as part of your benefits package (and remember, the time to negotiate this is before you go away, rather than when you actually need it several years down the line), international insurance is undoubtedly the most appropriate option for international travellers. In the following sections, we will look at some of the reasons why…
International Health Insurance
Although it is possible to insure yourself, your family and your property against almost every eventuality, in this article we will focus on the two main areas of concern for those with financial obligations and responsibility for dependants - health and life insurance. Many providers and brokers offer access to both types of insurance, and varying degrees of cover are available to suit your means and needs. However, if you are obliged to travel as part of your job, or simply enjoy globetrotting, a domestic policy may not be enough to cover you in the event of an accident or illness overseas. If this is the case, there are an increasing number of brokers and insurers offering international services that may be able to help…
National health policies can vary widely from country to country, and the last thing you need, should you or a family member be taken ill, is to discover that as a foreign national you are not eligible for treatment, or that you must pay through the nose to receive it. In the vast majority of cases (with some exceptions, for example treatment of a pre-existing condition) an international medical insurance policy could be the answer. Private medical insurance is designed to ensure that you can obtain the treatment you need, whenever, and wherever you need it, and as an expat, this flexibility will be invaluable to you.
Your first decision needs to be whether you are interested in a basic scheme, which will usually cover emergencies, in-patient treatment, nursing at home and repatriation, or a comprehensive scheme which will usually cover you for all of the above, as well as out-patient care, specialist treatment, routine dental, and complementary care. (Yes, this aromatherapy massage is medically necessary…) Although obviously prices vary from provider to provider, it is probably wise to opt for the most extensive cover that you can reasonably afford, for greater peace of mind.
International insurance brokers will usually offer a wide variety of policies to suit the needs and pockets of most expats, including international medical insurance, travel protection plans, single and multi-trip policies, annually renewable international plans, and group plans from a variety of providers, with a wide range of online tools to help you choose the most appropriate one.
As mentioned previously, there are several conditions and situations not usually covered by health insurers (international or otherwise). Different companies may disallow slightly different things, but here are a few of the common ones:
You also need to be careful about any possible geographical restrictions on the policy that you take out. US and Canadian citizens who are planning to expatriate need to be especially aware, as certain types of policy impose restrictions on the amount of time that they can spend revisiting their home country, whether for medical or non-medical reasons.
Cover is usually offered via premiums throughout three zones of the world, with Area 1 covering Western Europe, Area 2 offering world-wide cover (with the exception of the United States and Canada), and Area 3 offering total global cover. Some insurers and brokers offer world-wide coverage with all of their policies, but as previously mentioned, restrict the extent of US and Canadian coverage to accident and emergency treatment only, and the length of the stay to approximately 30 days.
Accident and illness can occur at any time, and in any country, and most of the circumstances covered by international policies are similar to those covered by domestic insurers; the policies just have the advantage of being 'mobile' in a way that domestic policies are not. However, there are some issues which are of particular importance to expatriates, and it would be wise to make sure that your international health insurance covers them.
Emergency help and the possibility of medical evacuation can sometimes be invaluable in time of crisis, and a good policy will provide you with access to high speed and quality international assistance.
If you will be expatriating to a difficult or inaccessible location, or are unsure of the standard of medical care available locally, it is highly recommended that you check that your preferred policy makes provision for this. Bear in mind, however, that the evacuation must be necessary, rather than just preferable; if there is no way that the emergency can be dealt with locally, then you will be evacuated to the nearest facility able to deal with it, rather than one of your choosing.
The majority of brokers and providers provide online quotes, or quotes by e-mail, and there is usually a facility for downloading application forms for policies, but having downloaded the forms, you may have to resort to slightly more low-tech methods to get the information to them.
There are, however, an increasing number of exceptions to this rule.
International Life Insurance
There are many different reasons why taking out a life insurance policy should be considered a priority for those with dependants and responsibilities. Life insurance is principally concerned with providing for the living, and with a great many whole life policies, it is possible to provide yourself with a reasonable level of retirement income by borrowing against your own assets, and provide for your loved ones in the event of your death or incapacitation. Below are some of the more common ways that personal life insurance can be used:
Whether you are an expat or a professional looking to buy a domestic life insurance policy, your concerns will undoubtedly be the same - the welfare of your family in the event of something unexpected happening. However, as an expat, you are probably in a position to take advantage of the greater benefits available through international life insurance, in a way that a stay-at-home policyholder would not usually be able to.
Policies sold within the jurisdiction of a specific government are often in a strait-jacket of taxes and regulations which defines the types of investment the insurance companies can hold their assets in, the types of investment they are allowed to offer their customers, what reserves they have to retain on their policies, the mortality assumptions they have to make, and the commissions they have to pay to those who market their products. This amount of regulation serves to make their returns unattractive when compared with international policies in the vast majority of cases. International policies also have the advantage over domestic policies for expatriate professionals in that they are payable in US dollars or other stable currencies, medical examinations can be conducted wherever you are, and it is possible to pay premiums in a greater variety of ways, for example by cheque, wire transfer, or in some cases by credit card over the internet.
Although policies often vary in their details, there are three basic categories of personal life insurance available, all with different advantages and disadvantages. These are:
Term Insurance. This type of insurance is taken out for a specified period of time, for example 5, 10 or 20 years, and if you stop paying the premiums, the coverage ends. No cash value accrues in a term insurance policy, so you can't borrow against it in later life, and like the rent on an apartment (because in effect you are 'renting' the cover in a similar way), the premiums can go up at the end of the specified term. This may not sound ideal (what if you get hit by a bus the day after your cover expires?), but in the short term, it provides the highest amount of cover for the lowest price.
Whole Life Insurance. This type of policy is usually more expensive, both in terms of initial costs and annual premiums, but has the advantage that the premiums are usually fixed for the duration of the policy, and you can build up equity. It is essentially a blend of pure life assurance and an endowment policy that matures on death. Although 'static' citizens can usually take advantage of tax privileged domestic pension schemes (which often contain an element of life insurance), this is probably not so for expats, who are unable to benefit in this way due to their mobility. Therefore, an international whole life policy may be worth considering from the point of view of tax efficiency.
Universal Life Insurance. This type of policy is a combination of term and whole life insurance, and offers you greater flexibility about the amount you pay each month and the amount of protection you desire, which is great if your circumstances suddenly change. Some insurers offer policies whereby premiums can be increased and decreased depending on your requirements and the desired rate of return of the cash value in the policy.
The other tax implications of owning international or offshore life insurance (with particular reference to whole life policies) are several. As well as serving the primary purpose of providing for your loved ones should the worst happen, offshore life insurance policies will usually provide substantial liquidity, tax free appreciation of investments within the policy, and borrowing at below-market interest rates from the investment account. (Although you need to be careful that you don't borrow so much against your policy that there are no longer sufficient assets for it to be classified as a life insurance policy.) Offshore and international life insurance policies can also provide a certain degree of asset protection for high net worth individuals, as confidentiality legislation is usually much better developed offshore than onshore. Be aware of the regulations regarding taxation and life insurance policies in your country of tax residence, though, as they may have an adverse impact on the benefits that you can receive.
Offshore insurance products are often known as 'wrappers', and can have the effect of creating a portfolio structure within which individual investments can be made rapidly and without additional 'kyc' hurdles. Such portfolio bonds are offered by a variety of companies, often through subsidiaries of well-established insurance companies in the Isle of Man, the UK Channel Islands, Luxembourg, Ireland or Liechtenstein. The insurance law introduced in Liechtenstein in 1996, and compatible with applicable European Union directives, has made Liechtenstein an attractive location for business with structured life insurance products. Policies concluded under Liechtenstein law enable wealthy customers to invest their assets in life insurance, and therefore benefit from attractive tax conditions and from the advantages of wealth management and estate planning.
Many of these jurisdictions offer a combination of confidentiality, security and legislative protection in the event of default of obligations by the issuer. There are many specialist firms offering sophisticated life insurance products for high net worth individuals.
The British HMRC usually treats such products as bona-fide Life Assurance contracts; the situation varies in other countries.
A note of caution, however. Although international life insurance providers (and their clients!) undoubtedly benefit from less stringent taxation and regulation, it does make the waters a little more dangerous for those expatriates looking for the right insurer and policy. However, if you do thorough due diligence on the international provider or broker before you deal with them, trying to obtain references from other customers, auditors, etc, where possible, and ensure that they are a reputable, well respected, and financially solvent institution, you shouldn't encounter any problems.