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Life Insurance in Spain - A Beginner's Guide

Why Do I Need Life Insurance?

This is one of the most frequent questions that I am always asked by clients. After all, very few people want to think about the scenario where you pass away 'before your time', and to consider how to provide for your loved ones should this eventuality occur. And the flip side of that argument, of course - is that if nothing happens, and you survive for the next 30 years, then the premiums you have been paying for that term assurance policy have been a waste of money!

However, the stark reality is that life insurance for those living in Spain is a critical part of financial planning, and perhaps especially so for expats living in Spain, where, should the unthinkable happen, your loved ones and dependents may have suffer from significant cash flow problems.

Far from being a waste of money, a well structured plan for life insurance cover can be cost effective, give you and ygour family peace of mind, and secure your loved one's financial future should it be needed. This article will briefly touch on some of the issues which you need to consider when deciding on the right type of life insurance you require. However, it is highly recommended that youe seek the advice of a professional financial adviser prior to taking out life insurance in Spain, to ensure that you receive the best advice.

What are the Different Types of Life Insurance in Spain?

There are a myriad of different types of life insurance policies available in Spain. However, in this brief guide, we will run through the 2 main types of cover - terms assurance and whole of life insurance.

Term assurance, or term life insurance is life insurance which provides coverage for a fixed period of time (or term), for a fixed monthly premium. Coverage is provided only until the end of the term which is agreed at the outset of the policy. After this time, it is possible to renew the policy, although the level of the premium is not guaranteed, and is very unlikely to increase. Life term insurance is the cheapest for of life insurance in Spain, and a very cost effective way of providing financial protection for your dependents for a specific period of time.

Whole of life cover (sometimes called permanent life insurance) is a life insurance policy which never expires (assuming, of course, that you continue to pay the premiums). When the policy holder dies, the policy will pay out a lump sum to the beneficiary. As the benefit is for the whole of the policy holder's life, and not just a fixed term, whole of life insurance policies tend to be more expensive than term assurance policies.

How Much Life Insurance do I Need in Spain?

The amount of life insurance which is required for Spanish residents may vary significantly for each person. In fact, for many people, the complex process of calculating this figure can put many clients off taking out a life insurance policy. The key is to work out what your major outgoings are, and will be for the forseeable future. The obvious outgoings are your mortgage payments (if you haven't already taken out a life policy for this outgoing), and other debts which are outstanding, such as personal loans and credit cards. In addition, you will need to take into account the cost of your children's education costs. Many expats in Spain send their children to private schools in Spain, and the costs can be considerable. And with university tuition fees in the UK costing upwards of £9,000 per year, higher education costs clearly need to be well planned for. You will also need to factor what your current income is, and the funds which will be needed to maintain the same quality of life for your loved ones in the event of your demise. Finally, your pension income requirements need to be borne in mind, and factored in to any equation.

Having calculated how much cover you will need, the next stage is to determine over what term the cover is required. These two processes are looked at together - for example, you may want to provide adequate protection until the mortgage is paid off, or until your children are grown up and have graduated from university. Or you may want to provide protection for the time until you are due to retire, at which point you will be paid a pension (which may pass to your spouse in the event of your death). In some cases, it is more cost effective to take out term assurance for a shorter period of time, and set up a seperate savings plan which will cover any shortfall for any further outgoings beyond that term. Your financial adviser will be able to determine the most effective method of providing the necessary financial protection for your family.