Insurance for HTA & Global Nomads

Should you be insured? How much should you be insured for? What insurance plans should you get? What's the differences amongst these plans?

In a nutshell, an insurance plan is a financial tool to help you transfer unwanted risks (specified in writing) to an insurer. You pay a premium which is in most cases predictable (of course, in some plans, where specified, the premium rate may be revised if the claims experience is very bad). For this the insurance agrees to compensate you if a risk event had occurred.

Whether you want to get an insurance depends on your preference. If you have millions of dollars and are not worried about risks like medical conditions that can lead to hundred of thousands of dollars for treatment, you may choose to self-insure. For most, buying an insurance with a relatively affordable amount that they can set aside every month is the preferred way. If they don't spend this amount on insurance, that amount may often go to things like entertainment and shopping which, once consumed, do not have any lasting benefit. Between these and insurance, the later is a more beneficial and prudent spending. You've got to talk to your financial planner to discuss these issues since every person's situation is different.

Typically, there are a few types of insurance that you should consider:
1) Life insurance (commonly includes Terminal Illness and/or Permanent and Total Disability):
If you have dependents who need you to provide for them, you need to set aside an estate (amount that is available to them when you die) while you are still alive so that, in the event you die unexpectedly these persons can live on without financial constraints. Things in your estate may include your house, your jewelery, deposits in the bank, stocks, etc. Of course, if these are still not enough for your dependents, then you buy life insurance to increase your estate's value. As to how much you need, it's really subjective. It depends on how much your dependents need and/or how much legacy you want to leave behind to a Charity or religious institution whom you want to donate to.

Many life insurance plans also include TI/PTD. Typically, if your doctor certifies that you are likely to die within 12 months (eg. you are suffering from some advanced stage cancer and your doctor has ruled out any chance of survival beyond 12 months), you may file a claim for TI. PTD typically refers to the permanent loss of ability to carry out ANY business or work for income (income making ability, in short). Additionally, the permanent and total loss of sight/ both eyes or any two limbs typically also are accepted as PTD. In the event of PTD or TI, those life insurance plans that include these covers typically 'accelerate' the benefits payment (pay out the death benefits even though the insureds have not died) and the life insurance typically terminates after all the death benefits have been paid out.

2) Hospital and Surgical Insurance (H&S):
Which reimburses your expenses from hospitalization and surgical operations. Sometimes, they also cover outpatient treatments for cancer and kidney dialysis. Some plans give you a fixed amount of cash regardless of how much these expenses are, based on the number of days you stay in a hospital or on the number and complexity of the operations you had undergone. This is considered an essential plan for most people. Even if they have no dependent (eg. both their parents had passed away, and they are single), they are likely to need medical treatments covered under such plans before they die. Unless, of course, if they die in an accident instantly! Both most people don't die like that.

3) Disability Income:
Gives you a fixed amount of monthly income until you reach a certain age if you can no longer work. You may be suffering from a disease or had become physically handicapped in an accident. But the important thing to note is that it typically covers you only if you are working. So, a full-time traveler who had retired may not be able to buy these plans. However, if you can prove that you are still working as, for example, a journalist or blogger (income-earning profession), it may be possible to be insured.

4) Long Term Care plans:
which covers you in the event that you cannot perform at least a number (eg. 3) of the "6 Activities of Daily Living" (eg. feeding or bathing yourself). If you can't perform 3 or more these ADLs you would need someone to take care of you and there comes a cost. You may be admitted into some hospital or nursing home. You may live at home but hire a nurse or maid to take care of you. Or your spouse may need to resign and stay home to take care of you. All these come at a cost. These plans would pay you a monthly benefit (usually stated in advance, say $2000/month) once a claim is approved, and as long as you are still considered unable to peform the same ADLs. Premium is usually not payable by you when you are receiving the benefits, and the benefits are usually payable up to for a number of years (eg. 5, 6 or 10) or for life, depending on the contractual terms.

5) Critical Illness aka Dread Disease plans
Which cover very specific types of disases like major cancers, heart attacks, strokes, etc, which are defined in the contracts. The definitions may differ (unless the insurers decide to standardise the definitions amongst themselves) from one insurer to another, so a person suffering from a cancer may be able to claim from one insurer but not another. Many critical illnesses may be so severe that they cause sufferers to spend hundreds of thousands of dollars for treatment and nursing care and even lose the ability to work for a few years or for life. So, by having a lump sum of money if one is down with one of such illnesses is helpful in many ways. First, the person can use the money to pay for treatments or home nursing. Second, he may resign and rest at home and use the benefits to pay for his monthly expenses. Many CI plans are packaged with life insurance, so once a person makes a claim for CI, the entire plan terminates. Otherwise, CI may be purchased separate from life insurance so that the life insurance protection remains even after a claim on CI had been made.

6) Travel insurance:
For full-time traveler, you should be very interested in travel plans. They cover many things that are of concern to you. A few things that are worth mentioning are:
a) Typically they offer International SOS assistance service which is very important especially when you travel to places with poorer access to medical services. The reason why this is so important is IS offers advice on which hospitals to choose. They put only those of a good-enough quality in their listing. Also depending on your policies' terms, IS may be able to arrange for cashless admission to hospitals (without you having to pay a deposit first). Typically, they also have a qualified doctor available to offer medical advice on the phone. If you are sick or injured overseas and you are located in some remote places, this service is of great value.

Also, more travel insurance companies also incorporate other forms of essential advisory over the phone (eg. hotels nearby, ATM machines' location, embassies' location, relaying of your urgent messages to your family, legal advice if you are arrested by the police, etc....... )

b) They typically offer public liability. If you accidentally kills or injures a person or burn a hotel, you may be sued and be ordered to compensate the affected person's family or businessowner.
c) They offer emergency evacuation.

Is the end in sight?

Well, while you live a HTA lifestyle, you should learn to reduce your expenses. Being able to control your budget and to survive in cheaper countries is the most important skills for HTA. After knowing where you like to spend most time in, and the expenses you will incur by leading a full-time adventurer (FTA) lifestyle, then you can calculate how much you need in your nest egg to sustain your expenses (see explanation below on how much you need to retire). The cheaper your lifestyle, the earlier you can arrive at your goal. But do not have just enough in your nest egg. Make allowance. You need some allowance to absorb the unexpected risks such as a market failure or poor health. Add 10-30% to what is the logical minimum you need in your nest egg. And, after you have arrived at this level of savings, control your budget so that you don't overspend your way into forced de-retirement.

HTA's Financial Fortress: Where to Start First?

First things first, you need the foundation: skills and insurance. In today's knowledge economy, you need skills to earn a living. Skills can come in different forms. For example, they include educational qualifications, certifications (eg. CPA, CFA), trade skills and, of course, the soft skills such as EQ, networking with people and personal selling techniques. Once you have acquired the necessary skills, you can convert them into money by combining them with your passion, time, capital and effort.

Secondly, you need to start building your wealth by first safeguarding it. You should purchase sufficient insurance to ensure that even if you become sick or disabled, you can still achieve your savings goal. Your health is the most important, for without it no matter how skilled you are you can't translate it into wealth.

After these 2 foundation areas are reinforced, you can then accumulate your wealth by learning to be thrifty and to develop the habit of regular saving as young as you can. Invest the savings into stocks, bonds and properties according to your risk tolerance. Even better, you can invest in a business that you are familiar with, because by doing something you are most familiar with, you are more certain of the return on investment.

How much is enough?

There are a few things you should be concerned about:
1) How much you need for regular expenses: traveling costs, wear and tear of your possessions, accommodation, food, entertainment, insurance premium, phone, VoIP or internet charges, etc.

2) How much you need if you run into unexpected health problems (aging, sickness, disability)

3) How much you need if you run into unexpected problems associated with traveling.

I think these vary along. For eg, if you travel by backpacking, sleep in 10-bedded hostel bunks, and minimize entertainment, then you could survive on US$30/day in most parts of the world for Area 1. Area 2 also depends on where you will be seeking medication or nursing care. Area 3 is usually well-covered by travel insurers. So, the easiest way to deal with 2 and 3 is to purchase the relevant insurance in your preferred countries of seeking medication, nursing or travel insurance claims. You may want to buy a backpacker's travel insurance from a UK, and a medical or Long-Term Care insurance from Thailand or Malaysia, for example. Insurance is the most straightforward means to deal with Areas 2 and 3.

Area 1 is what most people are clueless about. To ensure that you have US$30/day or around US$11,000/year for daily expenses and another US$1,000 for items like computers, clothes, water filter and shoes, you need a few sources of income that generate US$12,000/year adjusted for inflation. Supposed you have a fully paid annuity or rental property that pays you exactly this amount, then you have more certainty. You can have another source of income as a back-up for your annuity or rental income in case your tenant vacates your property or your US$12,000 annuity income shrinks in purchasing power over time. You may have a fund consisting of bonds and stocks for this back up, plus one year's budget reserve in cash (US$12,000 cash). But supposed you buy the financial planner's story that stocks and bonds are better than property or annuity in terms of yield, and ask how much should you have in stocks and bonds to generate this US$12,000/y, then you should aim at around
(100/3.5 x Annual Budget).
3.5% is considered a sustainable rate of return. But if you are retiring much younger, you can lower this to 3.0-3.3 to be safer.
For example, if you annual budget is US$12,000, and you are assuming a Safe Withdrawal Rate of 3.5%, then you should have (100/3.5 x US$12,000=US$342,857 in a fund that is invested 60% in stocks and 40% in bonds). For more details about SWR and how to withdraw from this US$342857 fund, google on SWR. Supposed you want to play safe, and assume only 3.0% return, then your fund needs to be (100/3 x US$12,000= US$400,000). So you should have a fund between US$343,000 to US$400,000 in stocks and bonds if you need US$12,000/y. This is a rough guide to how to calculate the money you need to retire today. And, of course, the returns is net of charges. So, if you invest in a fund with some annual management fees, you should take that into consideration.

Flexible Working Hours: The Key to Starting Half-Time Adventuring Earlier

Not everyone can afford to travel for 2 weeks and work the other 2 in a month. Most jobs that require you to be physically present in an office from 9-5 every weekday do not allow you to be away for 2 weeks. As such, you should strategically plan your career in such a way that sometime in the future you can become a freelancer or business owner with more flexibility in working hours. An engineer can become a consultant. An accountant can become become a freelancer. A cook can become a restaurant owner. A real estate agent may use his knowledge in the property investment business to acquire good properties and become a profitable landlord. While it would be best to be able to carry your profession around and work from anywhere with an internet connection, this option isn't at the present feasible for most people. You may be earn some coffee money from your blogs, writing, or photography, but it's not easy to earn a lot from such portable businesses.

Transport & Savings Rate: 2 Important Variables

In order to realise half-time adventuring, you need to travel to the nearest or cheapest places first so that you can increase your savings rate in the early part of your adventure career. This allows you to invest more during the early part of your adventure career, giving you the advantage of compounding effects on investment. This means that, ideally, you should spend as little as possible on travel, and save as much as you could, during the earlier part of your global adventure. You should invest a large portion on a diversified portfolio of stocks fund (eg. mutual funds, unit trusts, exchange traded funds, index funds or pure stocks) ranging from 50-80% of the total size of your savings, and also a diversified portfolio of quality bonds ranging from 20-50% of it. Generally, stocks give you the best returns in the long run, but there are more down sides in the short term, something that you could cushion with the bonds.

In order to travel with minimal expenses, your half-time adventuring can start from your neighboring and regional cities or countries. Ideally, you should travel to all these destinations via bus or budget airlines. While you are covering these destinations, you give your savings sufficient time horizon to grow. After covering these cheaper destinations, you can proceed to further destinations later when these savings can pay for part or all of the
higher costs.

In summary, to optimize your ability to cover as many dream destinations as you can in this life, you should control the variables of transport costs and savings rates. When you are younge, you should reduce the transport costs as much as you could by traveling to nearer destinations, and increase the savings rate as far as you can by allocating as little on travel as you can.

Half Time Adventuring

Half-Time Adventuring (HTA): An alternative to Retirement or Early Retirement

Traditionally, people have thought of 'retirement' as something for the old and unhealthy, who are 65 or above. But if we were to follow the state's definition of 'retirement' as a time for us to start pursuing our own interests, many of us would be either too unhealthy or have lost most survival years to do so. At 65, most people would suffer from one or more chronic illnesses. At 65, most would live less than 25 more years, of which many may be in need of Long-Term Care (LTC).

On the other hand, a growing number of young professionals, especially from the middle-class, are in favor of early retirement. Some luckier ones had managed to accumulate sufficient assets as young as below 40, and had invested the money in a way that generates a lifelong regular income that can sustain their needs. They never need to work again by living within this income. Many of these early retirees have stopped working altogether or earn a small, irregular income, on which they don't depend, from freelance writing. Most time, they travel around their country or internationally.

For the majority of people who aren't lucky enough to be able to accumulate so much assets that allow them to not need to work for life, there is a Middle Path, which I term half-time adventuring. To do this, you work during half the month, and travel during the other half.

Of course, in order to do this, you need to work in a job that allows you that flexibility. Better still, you should be self-employed so that you need not report to anyone except yourself. You may be a property agent, a freelance accountant, lawyer, or consultant, or a web designer. You may not necessarily need a job that can be done fully online, from anywhere in the world where there is internet connection. But what you need is a job that doesn't require you all 4 weeks in a month. This way, you will be able to be away for travel for 1-2 weeks, and work during the other weeks, every month.

In the subsequent postings I shall explain how this could be done.