My parents where in town last week, we hadn’t seen each other in a year and a half, so they hadn’t met our 3rd kid yet.
Obviously, we had a lot to discuss. My parents will be retiring this year (so I’ll miss one of my secret goals of retiring before they do), and as such it seems they are spending more time worrying about money. Not theirs, but their children’s.
My father in particular is very concerned about my financial situation. Now that I have 3 kids, it seems essential to him that I load up on insurances left, right, and center. I’ve worked in 3 different countries on 3 different continents in my career, and as such my situation is specifically complex. Personally, I believe I cannot count on social security from any of these countries (even though, legally, I should be able to receive something from all of these 3 countries as they have treaties related to social security), which is one of the reasons I’m saving towards financial independence.
For my father, it means I should have life insurance.
It turns out I have 2 life insurances (One that my wife put in place for me back in Japan, and one that I get from my work here in the US), but it annoyed my father a lot that I had pretty much no idea how much these insurances paid or how they worked. And it made him angry when I said I would lose the US one as soon as I move to Japan, and that on top of that I intended to cancel the other one because it was too expensive.
He was really angry that I did not seem to have a “real” plan to cover for my family’s expenses in case I die. My plan, is, of course, that I’m pretty much FI.
I have already hinted at my parents that I would quit my work soon, but I think they don’t realize I’m close to financial independence. This time, I almost spilled the beans in a bad way, which made my father even angrier. The conversation went something like that:
- him: “I’m serious about that life insurance thing. Here in France it’s compulsory for employees like your mother and myself to have one for the kids as long as we work. What does it look like for you, with your international situation?”
- Me: “I’m not totally sure, but I don’t rely too much on life insurance, you both know very well last time I trusted one of those, I lost lots of money“
- him: “You must have expat friends in Japan who work for investment banks or insurances, maybe they could give you some advice”
- me: “As I just said, I firmly believe Investment banks and insurances are crooks. I can guarantee you with 99% confidence that I handle my money way better than any of my friends today, so I don’t see what kind of advice they could give me”
- him: “You don’t understand. It’s not only about making or having lots of money. It’s also about being able to protect it”
We left it at that, but my father was right. I have grown arrogant about how I handle my money over the past few years. Index tracking has been working so well thanks to the bull market that it’s easy to start thinking I’m a genius when it comes to money. But that’s not the case at all. Yes, our household is close to being financially independent, but I need to seriously look into some of the risks that remain.
What if I died tomorrow?
There are a few things I need to compute.
First, if I died tomorrow, it is likely that the money from my side gig would go down significantly, and very fast. I would expect it to be down to 10% of what it is today, within 6 months. It is not passive income at all.
Secondly, there are estate taxes that I need to take into account. There is a non negligible risk that the US might want to tax my investments even if we’re in Japan. Japan might want its share too. In theory the two countries have treaties for that and things should be ok, but I can’t bet everything on a “should be”.
My solutions are as follows:
- As soon as possible, I need to transfer money from my accounts into my wife’s accounts. We will start this process as soon as we get to Japan. Specifically, all the money we will be saving moving forward will go into my wife’s investment account (which doesn’t exist yet, but we will handle that in Japan). The ultimate goal is to have roughly 50% on her side, 50% on my side. This means if something bad happens to one of us, and for some reason the money is not immediately accessible for some reason, there’s still a good chunk to cover daily life.
- I’ll review and update my “beneficiaries” paperwork on the brokerage account
- I’ll need to review my life insurance and ensure that it covers whatever gap exists if my side gig went to disappear
There is no “urgent urgency” here as for now I am covered by life insurance. I just need to make sure I review the Japanese one as soon as we get to Japan. My intent will be to cancel the existing one (which is tied to an underperforming investment part) and get a more typical term life insurance.
What if I was disabled?
This one’s a bit tougher on me: in addition to the issues above (assuming the disability prevented me from running my side gig and handling my money), there might be significant hospital costs involved, potentially for a long time. Although Japan health costs are much better covered and less scary than the situation in the US, I can’t say I know the details well enough. I know that beyond some annual hospital cost, health care becomes basically free in Japan, but I also know there are exceptions such as some specific cancer treatments. That thing is particularly difficult to understand and navigate. I don’t want to take more insurance than I need, but I also don’t want to take some stupid risk.
Currently I know that I have a special insurance that covers cancer, heart attack, and some other major health issue, but frankly to me this doesn’t help much if I get ran over by a truck or something. My solution is to look for a more comprehensive disability insurance.
I do not have great solutions for all these issues but what I can say is that my father was right. Even though he is probably far from realizing that we are close to financial independence, he also understood that I’m taking some unnecessary risk by denying entirely the usefulness of insurance. So I’ll have to look into it.