Life insurance is somewhat like writing a will — we think about it or talk about it every so often, but few of us do anything about it. Paul Wolf explains how to buy it, before it's too late.

Here are some of the most common reasons to have personal life insurance:

• Take financial care of your survivors;
  
• Take the financial aspects of your death off their shoulders;
  
• Pay off any outstanding debts — a mortgage, other loans, credit card balances, etc;
  
• Provide money in the event you are diagnosed with a dread disease or terminal illness. Some policies will advance you part or all of the death benefit so that you can fill in for lost income, get the special treatment you want, spend quality time with your family, etc;
  
• Pay estate taxes and other settlement costs;
  
• Provide educational funds for your children or grandchildren;
  
• Supplement your retirement income. Life insurance can often accumulate tax-sheltered funds within the policy;
  
• Charitable donations. Life insurance can be used to make a donation to your favourite charity.

Types of life insurance

There are three basic types of life insurance:

• Term Insurance: This can be likened to renting an apartment. It builds no equity within the policy. If you stop paying premiums, the coverage ends. And just like the rental lease on an apartment, the premiums can increase after the initial term of the policy ends. But, in the short term it offers the highest amount of coverage for the lowest cost.
  
• Whole Life: This is like buying a house. The upfront costs and annual premiums are usually higher than term insurance, but those premiums are generally fixed throughout the term of the policy. Most whole life policies offer a build-up of equity within the policy with significant tax advantages in that build-up.
  
• Universal Life: This is a flexible combination of Term and Whole Life. It has many of the features and minimal premiums of a term policy, and yet offers flexibility to increase those premium payments and accumulate equity using some of the features and advantages of a whole life policy.

When to buy life insurance

When to buy life insurance is a question for which there's no exact answer. At a minimum, most people would like to leave enough money to provide for the cost of their funeral. Aside from that, many people feel they don't need life insurance unless, and until, they have surviving dependants, debts or other liabilities to be paid off, or other needs to provide funds after their death.

As one's lifestyle changes and evolves, the need for life insurance also changes. Each lifestyle change brings a potential need for more or less life insurance, and therefore, ideally, the coverage should be reviewed at every such point of change. Most financial consultants recommend a regular and frequent review of life insurance as part of overall assets and liabilities.

How much should you buy?

Again, the answer to how much insurance you should buy depends on the individual. If there's a specific amount needed at your death - to pay off a mortgage or other debt, to donate a defined lump sum to a charity, to fund college fees, etc — then the amount of life insurance you need may be quite easy to calculate.

If the question is how much your survivors may need to live on after your death, it becomes a harder question to answer. Some factors which affect this calculation are: the age and number of survivors; where they'll live and the lifestyle they'll need to support; the rest of the estate you'll leave them; and various other points you need to consider.

Where to buy it

Until recently, you could buy life insurance only in your current residence or in any other country where you had an connection, for example, employment or a residence from which you actively conduct "lifestyle activities" (such as holding a driver's licence, doing banking, and making credit card purchases). That's a legalistic way of saying that you could normally buy life insurance only where you live now or in your home country.

For expats of the US, Canada and the UK, this was significant since premium rates for life insurance in those countries have dropped quite dramatically compared to the rest of the world, due in part to advances in life expectancy and the liberalisation of various statutory requirements for life insurance companies.

In the past few years, with the advances in communications and purchasing insurance over the web, international life insurance has become an easily available commodity. Now an applicant, regardless of his citizenship or residence, can purchase life insurance from a variety of sources and still handle the underwriting requirements.

These international policies offer many advantages, including benefits and premiums payable in US dollars or other stable currencies; medical (and other) exams conducted where you live; payment of death benefits wherever you or your beneficiary(ies) designate; and payment of premiums by wire transfer, cheque or credit card.

What to look out for

In the US, Canada and the UK, there are regulatory authorities that exercise a supervisory role over the activities of the insurance companies within their jurisdiction. There are also rating agencies that provide ratings of insurance companies. In the international arena, there are many reputable and world-renown insurance companies and there are also many small companies operating on the fringes of the insurance world.

You need to be aware of the ownership and financial standing of any insurance company that makes a proposal to you. On the other hand, you shouldn't have to pay inflated premium rates because of an insurance company's pedigree. There are international insurance companies which offer premiums and policies based on a particular country's policy designs, mortality rates, and premium tables, and which are owned and guaranteed by major insurance companies.

The bottom line

The bottom line is that life insurance is for the living, not the dead. Those who depend on you or will be left with a burden when you die are the ones who might need the life insurance on your life. And, ideally, it should be a part of an overall financial plan which takes into account all of your other assets and liabilities. Remember it's you who has to make the final decision to buy it — while you can.

Paul Wolf is president of Innovative Benefits Consultants.

Subject: Life insurance tips for expats