How much life Insurance do you really need?

We all know that anybody can die at anytime, and if you have a dependent, you will want them to be looked after if tragedy strikes.  Even if you don’t currently have children, you might in the future, or might have an elderly parent.  So how much life insurance do you really need?

A good, and basic, rule is to assume that a lump sum from life insurance will yield the beneficiary 4% per year for the rest of their life.  In other words, $100,000 will yield $4000 per year, and  $1M will yield $40,000 and so on.  This does depend on numerous assumptions, of course.  How conservative your loved ones are with money is one consideration, and how they invest the money after the death.

Before deciding on how much life insurance to get, also consider how much debt you have and savings.  Imagine you have person 1, who has a partner who needs $50,000 of yearly income.  This person also has $500,000 in assets that can generate an income such as shares and cash.  Such a person should aim to get $750,000 of life cover, because 50,000×25-500,000 = $750,000.  Now consider person 2 is in the same situation, but they have $50,000 of debt.  In which case, $800,000   of life cover is more sensible.

Of course, these are only rules of thumb. If somebody has an elderly frail parent who is 95, one clearly doesn’t need 25 years of life insurance.  In addition, if one has a partner who is likely to be able to generate their own income, or can partially rely on income from the state, that will also lower the amount of cover needed.

As you can ascertain by now, how much life cover you need is not simple.  That isn’t an excuse for putting it off, however. Be prepared if the worst happens.

Health Insurance for Expats in Cambodia and beyond: A Checklist (Magazine Article)

For most brokers in Cambodia, inquiries about health insurance outnumber queries related to pensions, savings and real estate.  Most expats understand the importance of protecting themselves and their family whilst they live overseas.  Fortunately, health insurance is one of the products in the market which is easiest to understand and grasp, but nevertheless there are a few basic points that consumers should consider:

Budget and level of cover:  Before anything else, consumers should consider what they actually need in terms of protection.  Those with unlimited budgets are in a minority, and most dental procedures and non-emergency health-care procedures are very cheap in Cambodia and in most parts of South East Asia.  For those in this situation, it makes perfect sense to get standard basic coverage that covers emergency procedures that can be both life threatening and extremely expensive.  It is also sensible for those with some cash in the bank to opt for some co-pay options to limit the premium.

For those with specific life plans, a more comprehensive plan might be needed. A good example is if you are planning to have a child, as the costs associated with child birth are usually not covered by basic plans. This is becoming particularly important because many countries have changed the rules in respect of expatriates claiming health care costs related to `non-emergency` procedures, with the UK National Health Service now charging non-resident citizens for such procedures.

Regulation:  This is arguably the most important, and sometimes, the most overlooked aspect of the equation.  One common worry, and indeed misconception, that many have is that it is usually difficult to claim .  An important factor to consider in the case of insurance is the country in which the insurance firm is regulated from.  Insurance companies ran from well-regulated environments such as the European Union, Australia, Singapore and Hong Kong are restricted in terms of the practices they can adopt.  In such instances, most of the issues with claiming are related to self-harm or failing to declare information on the application form.  It is perfectly normal for insurance firms from such locations to adapt policies to make compliance easier and to reassure the consumer about the convenient of claiming.

Direct Billing:   One example of such a policy is for the insurer and the hospital to settle the bills directly, and thereby making the process of claiming unnecessary.

No health questionnaire and covering pre-existing consitions:  In the past, insurance firms have found excuses not to pay out for legitimate reasons such as lying on application forms.  However, and controversially, some insurers have failed to pay out due to more grey areas, such as the consumer failed to declare everything, perhaps because they can’t remember their whole medical history.  In response to this, and for administration efficiency, some insurers from well-regulated domains have abolished the questionnaire and cover pre-existing conditions after a specific number of months.  AXA Hong Kong would be the best example of such policies that I have seen.

Automatic renewal:  If you get cancer in two months, and the insurer doesn’t have to accept your application next year, they will probably cut off the funding after 10 months, if they are under no legal obligation to do so.

Evacuation:  Phnom Penh still doesn’t have hospitals on a par with Bangkok, Singapore or Hong Kong.  An airlift into one of those aforementioned cities is often needed for some specific procedures.

As the above information shows, there are a few things for any adviser and consumer to consider. The biggest thing to consider, is whether you are protected in the first place. For that, no check list is required.

The article above was originally printed in B2B Cambodia.

Greece – a buying opportunity?

The current events in Greece has had side-effects on the world’s equity markets.  The FTSE and many European markets are about 10% below the highs they had previous hit earlier in the year.  The Chinese market is also down more than 30%, although one suspects that has more to do with the bubble that was happening than anything to do with Greece.  Developing markets in general have seen capital flight, as have their currencies, and `safe haven` trades such as US, German and other government bonds are back in fashion, after previously taking a hit.  The US is also up for some of the same reasons.  The question is, is this a buying opportunity?

The first thing to remember is that one can’t time markets.  For the average investor, it makes sense to invest when they can, either monthly, or in lump sums depending on their financial circumstances, and wait it out for the long haul.  Equity markets should rise over time.  It is very easy for investors to keep to much money in cash waiting for the `perfect` opportunity to invest, when in reality, nobody has a crystal ball.  Very few people could have predicted what has happened in the world in the last 5-10 years and there are always some known unknowns and unknown unknowns.

What this crisis is once again showing, however, is the importance of being diversified and invested in numerous asset classes.  If the crisis gets worse, government bonds will go up in value, and equities down.  Therefore, it is possible to reallocate away from the bonds and into the equities.  Using the Warren Buffett rule of being optimistic when others are fearful and vice versa, investors can take a rational, pragmatic and long-term approach to their portfolios and reap the dividends.

Having said all that, it is important to look towards markets that are cheap historically and in terms of price-to-earnings ratios and only measures of value.  Even before this last sell-off, emerging markets looked cheap.  They didn’t see the types of consistent double digit growth that the US markets saw after 2008.  With the Greece situation being as it is, it makes some sense to re-allocate 5% of funds towards emerging markets.  Re-allocating every 3-6 months, away from performing funds into under-performing ones is painful, but necessary.