Life Insurance Planning for Expats in Japan: How Much Cover Do You Need?

Written by Jack Lowe

Life insurance is a crucial part of your personal financial plan.  It can be a lifesaver for families when the unthinkable happens, providing financial security for your loved ones in their time of need.  Determining the appropriate amount of life insurance can be overwhelming, particularly if you’ve never done this before.  For expats in Japan, figuring out the insurance landscape can be more challenging. So where do you start?

There are several factors to consider when making this decision, and each family’s situation is unique.  Below, we list five of the most common factors to consider when deciding how much life cover your family needs.

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  • Age of Your Family: The age of the family is an important factor to consider when determining the appropriate amount of life insurance.

    Generally, the younger the family, the more life insurance they need to ensure their loved ones are financially secure if the primary breadwinner passes away unexpectedly. This is because younger families typically have more financial obligations, such as mortgage payments, education expenses, and childcare expenses.

    For example, a family with young children has many more years of education to cover in the future than a family with children near adulthood. In addition, older families will have had more time to build their assets over time, such as investments, retirement accounts, education savings plans, and real estate holdings.

  • Your Debts: If you have outstanding debts such as a mortgage or car loan, you will want to ensure that your life insurance coverage is sufficient to cover those expenses, so your family can be free from that financial burden.

    In Japan, mortgage loans will have life insurance attached to clear the loan if you pass away.  While this factor could reduce your risk, we should remember that both parents will normally not be included in the mortgage cover, so if the other parent dies, the loan will continue.

    Also, please keep in mind that just because your house becomes free and clear, you will need additional coverage to help your family maintain their standard of living.  Food and clothing still need to be bought, and education expenses must be paid.

  • Your Existing Assets: When determining the appropriate amount of life insurance, it’s important to consider the existing assets that the family has. The more assets your family has, the lower the financial risk.

    Assets will include your savings, investments, pensions, real estate holdings, existing life cover, and other valuable assets that can provide financial security for your loved ones.

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  • Your Family’s Current and Future Expenses: Consider the financial needs of your family, including education expenses, healthcare expenses, and long-term care expenses.

    Education will typically be the biggest factor here, and the liability will vary depending on your family’s current expenses and future plans.  Are your children attending a private or international school in Japan? If so, your liability will be higher, as the ongoing costs are much higher.

    Will your children attend university in Japan or abroad, in countries such as the US?  The costs can vary greatly, so this, too, needs to be considered.

  • Potential Inheritance tax liability: Japan has the highest estate taxes in the world, especially for those with significant estates they want to pass on to their heirs. While the tax rate is progressive, it can reach as high as 55% on higher amounts.

    In addition, unlike in most countries, the tax is owed by the recipient and not the estate.  To learn more about inheritance tax in Japan, please read our article on this topic.

    The easiest way to protect your family against a possible inheritance tax liability in Japan is through sufficient life insurance cover so that they can use the payout to cover the tax.

    For high-net-worth individuals, or even those expecting significant inheritances in the future, a consultation with one of our financial advisors is highly recommended.  An advisor can help you navigate the complex rules around inheritance tax and identify strategies to minimize your potential tax liability.

At Argentum, we understand that determining the appropriate amount of life insurance can be a complex and emotional process. That’s why we offer personalized financial planning services to help our expat clients living in Japan make informed decisions about their life insurance needs. Contact us today for a free consultation to learn more about how we can help you plan for the future.

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Argentum Wealth does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

Argentum Wealth Management is licensed through the Japanese Financial Services Authority to give financial advice. The FSA strongly recommends that you only receive financial advice and services from a locally licensed and regulated firm.

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