Types of Life Insurance Available to Expatriates
There are a very large range of life insurance products on the market, both domestically and internationally. They range from the relatively simple term life products to complex, quasi-investment products. Unless your needs are very specific, it is recommended that you seek professional advice in selecting the appropriate product or service for your situation.
To provide an introduction to the area, we summarise below some of the attributes of term and disability insurance, as well as "whole of life cover".
Term Life: Insurance/Assurance
Term life insurance pays a lump sum in the event of death within a specified period of your choice (known as the 'term' of the policy). You generally pay for the policy via monthly or annual premiums throughout the term of the policy and, more unusually, through a single lump sum premium paid up-front.
There is no investment aspect with this form of life insurance; hence, if no claim is made then no maturity or cash value is payable at the end of the term.
Term insurance is the simplest and cheapest form of life insurance and the period of cover may extend up to age 95; with the premium depending on a number of factors including the sum insured, the period covered, age, gender, health and occupation of the insured. Medicals will not always be required but you can expect to fill in a health questionnaire. Whether you smoke or not will usually affect the premium payable, with smokers paying more; a non-smoker usually being defined as someone who has not smoked for at least 12 months. Premiums for women are generally lower as they tend to live longer than men.
There are a number of types of term insurance available, including:
- Level - a lump sum is payable on the event of death. This lump sum remains constant throughout the period of the life insurance term, with no adjustment for inflation or otherwise. This is the most common form of life insurance.
- Decreasing - a lump sum is payable on the event of death. The lump sum decreases by a fixed amount during the period of the term; decreasing to nil by the end of the insured period. This type of cover is usually used to cover mortgages or other loans where the amount owed also diminishes year on year.
- Single and Joint Life plans – a single life plan insures one life whilst a "joint life first death" plan insures two lives and pays on the first death.
Term life cover is the most readily available form of insurance for expatriates - the various forms of disability insurance described below, income protection, TPD and trauma insurance are appreciably harder to arrange if non-resident, and may not be accessible. Hence the importance we attach to reviewing your position prior to leaving Australia.
Disability Insurance provides a benefit upon illness or injury. There are a number of different types of disability insurance, but the most common are:
- Income Protection (also known as Disability Income Insurance) - this provides a monthly benefit to replace lost income when someone is unable to work due to sickness or injury and can be paid up to age 65 linked to inflation. The benefit can be up to 75% of your salary package and, as an interesting aside, the premiums paid may continue to be tax deductible in Australian income tax returns - even if an individual is non-resident.
- Total and Permanent Disability (TPD) – this pays a lump sum when an individual becomes totally and permanently unable to perform an occupation they are suited to. There are significant differences in "definitions" within these types of policies, and considerable care needs to be taken to understand these differences and the precise quality and breadth of cover provided.
- Trauma Insurance (also known as Critical Illness Insurance) - pays a lump sum provided an individual survives for a period of time (often 14 or 28 days), due to any one of a number of specifically defined illnesses. The major illnesses include: heart attack, cancer, stroke or coronary artery bypass surgery.
Whole of Life Insurance
As the name suggests, 'whole of life' cover provides life insurance cover for the whole of your life. The sum insured is paid to your dependents following your death.
Whole of life insurance is more expensive than term cover because it is certain that the life company will eventually have to pay the sum insured and there is an associated investment value. Monthly premiums are invested by the insurer into a life fund.
There are a large number of types of whole of life insurance, and they tend to be very popular in environments where inheritance taxes exist. This is not the case in Australia where the product is no longer available.
The terms and conditions attaching to policies vary considerably, particularly the definitions attaching to key terms, so make sure you understand the scope of the cover being offered before committing yourself.