So you are backpacking in Australia or New Zealand, and you are leaving your small business or young children behind for a couple of weeks. Everyone needs to do something for themselves periodically, whether they are maintaining a household or running a business – this is how you stay fresh and are able to sustain the significant personal effort it takes to be successful at either endeavor. But have you thought about what would happen to your family or your business if something happens to you while you are traveling out of the country?
Purchasing a life insurance policy can go a long way to giving you peace of mind while you are taking a break and traveling. Here is a guide to why you need life insurance and what you need to consider and watch out for when you purchase a life insurance policy and plan to travel abroad.
Life insurance can guarantee your family’s income stream and funding of your small business.
If you are the primary breadwinner in your family, or, if you own a small business, you should plan for an income stream replacement if something should happen to you while traveling abroad.
If you are married, you will likely name your spouse as beneficiary to the life insurance policy. If you are divorced with children, you can name your ex or name your minor children with trust and guardianship provisions.
If you own a small business you can name your successor or the business itself as a beneficiary to your life insurance policy.
How much life insurance do you need?
This is wholly dependent upon why you are purchasing life insurance and what that life insurance is supposed to fund. Conventional wisdom dictates that 10-15 times your annual income would suffice, however, there are factors you should consider that may decrease or increase the amount of coverage you need.
How old are your minor children? This will factor into how long you expect the death benefit to fund their current lifestyle. Do you want to fund their college educations? This should factor in as well.
What does your business need to continue operations should something happen to you? The life insurance proceeds can be used to hire new talent to replace you, or to invest in more stock or machinery. Most commonly life insurance proceeds are used to secure or repay business loans that you have personally guaranteed, or, to secure leases of real property or equipment.
Avoiding life insurance lapse or termination while abroad
While you are traveling you do not want to have to worry about whether your bills are being paid, including your life insurance premiums. The easiest way to make sure your premiums are paid is to sign up with your insurance provider for automatic premium payments deducted from a funded account. In the alternative, you can set up automatic payments to your insurance provider with your banking institution.
Either way, make sure the account you are using to pay premiums will be fully funded while you are away. If you miss a premium payment, your insurance provider must send you notices prior to terminating your policy, however, the chances of you getting those notices while abroad is slim. And if your policy lapses or eventually terminates, your beneficiaries will have trouble collecting the benefit you intended they receive. Don’t chance it.
Avoid life insurance exclusions
Every life insurance policy will have a list of excluded activities and destinations – meaning, you are not covered by your policy while engaging in those activities or visiting those destinations.
Obviously, insurance providers will look at scuba diving and mountain climbing differently than, say, knitting or touring museums. The greater the perceived risk to the safety and life of the insured, the more likely the activity will be excluded, or, if not excluded, the insured will have to pay a higher premium.
Insurance companies rate travel destinations according to how risky it is to visit there. Destinations may be categorized as acceptable for travel, acceptable for travel but with limits on time spent there, and unacceptable for travel.
Factors weighing into the rating of destinations include:
- Stability of government
- Stability of economy
- Medical infrastructure
- Level of development
If a country is at war or is suffering from a natural disaster or wide-spread illness, this will increase risk. For this reason, the risk categorization of countries should be considered fluid. Check with your insurance provider about the destination(s) you intend to visit. It may be that you will not be covered while there, or that your premiums will increase due to the increased risk.
Time spent out of the country
If you plan to spend more than six (6) months abroad, you need to let your insurance provider know and inquire as to your coverage. Many insurance companies will put your policy on hold if you are considered a non-resident of the U.S. due to the time you spend abroad.
Shop for a policy that does not exclude the places you intend to visit or the activities you intend to engage in, and be sure to notify your insurance provider of where you intend to go, what you intend to do while there, and how long you will be there. Disclosure upfront will avoid problems for your beneficiaries should something happen to you.
Avoid problems during the contestability period
The contestability period, usually two (2) years following the purchase date of your life insurance policy, is a time during which your insurance provider has heightened power to investigate the information you submitted in your initial application and medical questionnaire, and can deny your beneficiaries’ claims if that information was inaccurate – even if the disputed information had nothing to do with the cause of death.
To avoid making problems for yo8ur beneficiaries, do the following upfront and continuously as your circumstances change:
- Disclose your medical history in full
- Disclose destination(s) you intend to visit
- Disclose activities you engage in while home and while traveling
In sum, it takes some thought to manage your life insurance coverage while traveling abroad, but with a little planning you can avoid problems your beneficiaries might have should the worst happen while you are away.
About the Author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with busy Philadelphia life insurance attorney Chad Boonswang, Esg.