Life insurance basics
If you are an employee, only a few countries in the world provide income maintenance coverage in case of disability. If this is the case in your country of expatriation, this is good news, but you still need to check the amount of the benefit paid and, above all, whether it will continue to be paid if you leave the country. Because if you are on disability, you may want to return to your country of origin and to your family.
Sometimes your employer will provide you with occupational accident coverage because this is required by local regulations. This coverage is better than nothing, but it may offer you very much. For expatriate populations, occupational accidents represent only a tiny proportion of disabilities (expatriates generally don't have dangerous jobs).
If you are an expatriate and are unable to work, there is a good chance that you will have no income. If this situation continues, it may become permanent and mean that you will have no professional income for the rest of your life. This is a good prospect for the future.
Disability doesn't just happen to other people and only to those who are 60 years old. The average age of those who file disability claims is 48.
For people under 40 years of age, total disabilities represent 60% of cases. Other than psychiatric disorders, the leading causes of disability are:
- Diseases of the nervous system, such as multiple sclerosis - 24%.
- Diseases of the osteoarticular system, such as polyarthritis, arthrosis, spinal conditions - 16%.
- Tumors - 12%.
- Accidents - 11%.
- Stroke - 9%.
This issue arises mainly in the event of death and if you have children. In the event of the death of one or both parents, how will your children be supported?
In countries where higher education is free, who will finance their education?
Again, for EU employees, the issue is often settled by their employer's life insurance, which will pay at least their years of salary and possibly annuities until the end of their studies. Since nothing is generally provided for expatriates, you will need to cover yourself voluntarily.
An expatriate who has a disability at 40 but earns €50,000/year would lose €1,250,000
Just as most people decide to install an alarm in their home after the first burglary, in more than one out of two cases, people only decide to take out life insurance after a first health incident.
The problem is that, unlike an alarm that can be installed in a house that has already been broken into, it is difficult to take out life insurance after a health incident because all insurers have health questionnaires.
The most common cases are:
- After a mild stroke.
- After the removal of a malignant tumor.
- After the first diagnosis of a slowly progressing disease (such as MS or polyarthritis) when the symptoms are very mild.
- After a first medical leave of absence of more than 30 days.
The existing condition will then have three possible consequences:
- The insurer will completely refuse to insure the person.
- The insurer will exclude the existing condition, even though the person wants it to be covered.
- The insurer will agree to cover the existing condition but will increase the rate by 25, 50 or even 100%.
Our advice is simple: life insurance is just as important as health insurance. When you calculate your health insurance budget, save some room for life insurance; at least 20%. Take out both at the same time, otherwise you won't think about life insurance until it's too late.
The idea is to pay a death benefit if the insured dies. This benefit will also be paid in the event of the total and irreversible loss of autonomy. This is a state of extreme disability where the disabled person needs permanent assistance from someone else.
The amount of the benefit is determined when the policy is set up. The amount of the premium depends directly on the benefits provided. Insuring for a benefit of €200,000 is twice as expensive as insuring for a benefit of €100,000.
If, as a reference, we consider insurance companies executives, the benefit will be between two and three times the annual salary + one time per dependent child. For a couple with two children where each parent earns €60,000, a policy could be taken out for each spouse, covering 60,000 x (2.5 + 2) = €270,000.
The options generally offered are:
- Doubled benefits in the event of death by accident: this option is not very expensive because accidental deaths are much less common than deaths by illness.
- Education annuity: this annuity will be paid every year to children as long as they continue their studies. This is easier to manage than a large death benefit This is good option if you have children under 13 years of age. After this age, the coverage/price ratio is not very good.
- All-cause disability benefit: this option pays a benefit equivalent to the death benefit for a "simple disability" in the event of accident or illness. The cost of this option is very competitive. The coverage/price ratio is excellent.
In French contracts, the insured chooses a daily allowance amount to be received in the event of disability. After two years, the daily allowance will be transformed into a disability pension in the same amount.
The amount of this allowance is determined by taking into account the insured's current income. An insured person earning €3,000 per month cannot receive an allowance of €4,000 per month, because this would be what is known in the insurance industry as an unjust enrichment. Policies always include a limitation clause of between 70% and 100% of the actual professional income at the time of the incapacity for work.
Thus, for an insured person receiving a salary of €5,000 / month, the calculation is: 5,000 x 70% = €3,500 / month, or €117 / day.
You will also have to choose the deductible in days. This is the number of days of disability that will not be covered. The shortest deductible is 30 days. The longer the deductible, the lower the rate.
Our advice is to select the 90-day deductible in order to lower your premiums.
It is better to take out a policy with a 90-day deductible than to postpone sine die taking out a policy with a 30-day deductible because of the price. Financially speaking, the problem of the first three months without income can be annoying, but this doesn't compare to the problem of having no income for 20 or 30 years.
English policies generally have a shorter deductible, but the benefit is only paid for two years. After two years, the insurer pays the agreed disability benefit. For people under 45, this system is generally much less advantageous than the French system.
The CFE also offers disability and invalidity coverage for employees. It covers 50% of the gross salary, up to €41,000 / year. The cost of the coverage is relatively high, but you don't need to fill out a health questionnaire.
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