What happens to clients’ UK-based life insurance if they move abroad? Expatriate Healthcare’s
Lee Gerry outlines some of the potential issues that advisers and customers should bear in mind.
Whether it is to retire, to start a new career, or even to embark on an extended period of travelling, more British people than ever before are choosing to live overseas. According to the United Nations (UN), the number of Brits living overseas increased from 4.8 million in 2010 to 5.1 million in 2013.
These are permanent UK nationals, rather than migrant workers returning home, and the figures do not include the large numbers of people who may be moving abroad for an extended amount of time to work that the UK Border Agency believes will last less than a year.
With effect from April, the UK Border Agency has begun compiling comprehensive exit information on people leaving the country, as part of the 2014 Immigration Act, providing an even clearer picture on the number of UK nationals leaving the UK, and the reason for the journey.
As we all know, many UK residents buy their life insurance policy when they are comparatively young as part of their purchase of their first house or after a substantial change in circumstances, such as the birth of a child or marriage.
Life insurance is a genuinely long-term purchase, but how many people, including those in middle age, really think about whether they will be making significant life changes, such as moving overseas, ten or 20 years into the future?
In our experience, not that many, but that’s probably not surprising, because the opportunity to live and work abroad
is something that may present itself out of the blue, or a little later in life.
Complications For Coverage
Moving abroad for an extended period of time has far-reaching implications for the coverage that policyholders can expect from their life insurance. Moving overseas for less than six months, depending on the country, probably won’t affect the operation of a life insurance policy, although some providers may restrict this to ‘holidays’ and short stays.
However, it’s always better to check with life insurer the maximum amount of time the policyholder can spend outside the UK, so you can ensure that anything longer than a holiday or short stay will not invalidate the policy.
The country that person is visiting and the reason for their visit may also have a bearing on the provider’s application of the policy terms and conditions.
If customers do go for more than six months, many UK domestic life insurance products are likely to be invalidated, or at least some significant changes to customers’ terms and conditions may be imposed.
For example, some insurers that we have spoken to will require that customers maintain a UK bank account, as well as a UK address.
And if policyholders are out of the country for more than six months and their circumstances change: for example, if they extend their stay, or move permanently to another country, or change the country of temporary residence, the effect in the operation of the insurance product will not be able to be advised until the change of circumstances are actually known.
This lack of certainty can leave many customers exposed. It is clearly important, therefore, that customers, and by extension brokers, are as educated as possible about what is and isn’t covered by a life insurance policy at the beginning of the purchasing cycle.
For those UK citizens thinking of moving to the sun to take up the expat lifestyle, the onus to go through their prospective life insurance policy is even greater than those with no intention of living overseas.
In our experience, a lot of people considering moving abroad to work, depending on their circumstances, rely upon their employers to provide them with the information about the benefits available.
Employers, however, are more likely to provide information and advice about the corporate protection policies, such as healthcare benefits, because access to an NHS medical services is unlikely, that they offer to the employee when they move overseas on short- or long-term contracts. Accordingly, the employees own personal insurances can be overlooked, and the implications for those plans when moving abroad.
Life insurers are going to rate cover based on the circumstances presented to them as the point when cover is originally purchased.
Most insurance policies operate only for a short period of time, so we are required to provide an update of circumstance annually. With long-term insurance, we don’t have this trigger to provide an update, and therefore the policy can be bought and sit at the back of a drawer not to be thought of again until an outcome requiring a claim.
Any change in circumstances that affects the operation of that product need to be advised to them and those circumstances, not unreasonably, may change the operation of the policy, potentially allowing a complete re-rating of the cover or rendering cover invalid.
The main issue that prospective expats face from the life insurance before moving overseas is the ‘unknown’ element. Do they know how long they will remain in a country? Will they be sent to another country by their employer? If so, to which country will they be sent?
Will their contract be extended? Each of those scenarios can have a significant bearing on the applicability of their life insurance cover and consumers need to carefully consider these questions. What can be done to mitigate the potential exposure?
In the 21st century, many more people lead far more transient lives than in previous generations, which means that consumers should, ideally try to think ahead about major changes that may take place in their lives before they buy a life insurance policy.
And if they do decide to move abroad, they need to examine carefully their existing life insurance policy to see if the coverage is still valid. Therefore, the objective is to future-proof their life insurance policy as much as possible so that unknown events in a person’s life don’t affect the protection that they afforded.
This is especially important if one of the events affects the customer’s ability to obtain any cover whatsoever: for example, a medical condition that would preclude them from obtaining a new policy or a move to a country where term life either isn’t available, or where underwriters consider the country of residence such a high risk that they won’t offer cover.
That doesn’t mean just looking at high-risk countries such as Afghanistan or parts of Africa. Spain is a country where underwriters are reluctant to offer cover because of the complicated inheritance tax (IHT) rules, and the way in which policies have to be administered.
While a ruling by European Union simplified the IHT rules (previously they were different, whether you we a resident or a non-resident, but the EU ruled this discriminatory) the changes aren’t expected to take effect until January 2016.
Domestic underwriters, not unreasonably, are wary of how international rules and licensure can impact on the ability to undertake risk and the administration of a policy.
Brokers have a key role to play here because for long term policies a longer term view may needed to be taken of a customer’s circumstances. It is important, therefore, that brokers really probe their clients about their future work and retirement intentions to ensure that any policy they do recommend is adaptable and is truly fit for purpose.
As a result of this trend towards a more transient lifestyle, Expatriate Healthcare has identified a growing demand for life insurance policies that are truly portable and follow the international traveller wherever they go: whether as a standalone product, or to complement an existing arrangement.
For this reason, we have developed an international term life insurance product that is specifically aimed at expats. The policy remains in force if the policyholder moves from country to country, and it can be quoted and applied for online, with premiums accepted in three currencies: sterling, euros and US dollars. Currently the policy is available to persons resident in 88 different countries and 56 different nationalities (subject to licensing). Capacity for the product is provided by ANV’s Lloyd’s of London Syndicate 779.
A UN report in 2013 showed that a record 232 million people – 3.2% of the world’s total population – live in a different country to the one in which they were born.
The trend towards a much more international lifestyle is clear. In 1990 the number of people who had moved to a different country was just 154 million, rising to 175 million in 2000.
It is up to the insurance industry to adapt to this changing reality and supply the life insurance and other financial services products that the global citizens of today require.