FINANCIAL freedom as a goal becomes more challenging to achieve as we face a world characterized by volatility, uncertainty, complexity and ambiguity.
There are many risks that can end up ruining the best of plans. Political, economic, social, technological, environmental and legal developments affect people and personal finance. Hence, apart from knowing the value of saving and investing, having protection against risks is important. Protection can come in the form of non-life insurance where we protect what we own.
A study by the Harvard Human Initiative notes that the Philippines is one of the world’s most disaster-prone countries. It has major tectonic plates and is at the center of a typhoon belt. The common natural disasters that hit the Philippines are floods, typhoons, landslides, earthquakes, volcanoes and droughts.
Apart from deaths and injuries, many assets get damaged because of disasters. Unfortunately, the same study notes that the Philippines fares poorly in terms of population exposure and vulnerability to hazards. Protecting assets therefore becomes very important given the geographic vulnerability of the country to disasters.
One popular type of non-life insurance is home insurance. For many people, owning property is a cherished life goal. A home provides utilitarian value to families and it also provides a good potential source of passive income through rental revenue. If a disaster strikes and the home is not insured, there is a big chance that savings will be drained and loans might be forthcoming. Nothing beats peace of mind.
Road safety is a challenge in the Philippines. The Metro Manila Accident Reporting and Analysis System revealed that there were 42,812 cases of damage to property in 2021 as a result of road crashes. One of the top causes of road accidents would be human error.
Apart from road accidents, damages to vehicles and theft can also occur. Thus, another popular type of non-life insurance will be auto insurance. A vehicle gives benefits like mobility and business opportunities like trading, delivery and ride-hailing services.
There are other popular types of non-life insurance. As travel resumes after the ill effects of the Covid-19 pandemic, travel insurance becomes valuable when it comes to travel emergencies and losses. As people resume onsite activities and become more exposed to the external environment, health insurance becomes valuable for matters like health maintenance and medical treatment. The pandemic made many businesses experience irregular operations. Business insurance helps in smoothening operations.
In planning for non-life insurance, there are certain things that must be considered. One has to be able to prioritize assets according to importance. Not all assets have the same value to individuals. Once the asset to be insured has been identified, there must be a conscious effort to include the payment of premiums in the monthly budget. In terms of budgeting, payment for premiums can be done ahead of needs and wants. The envelope budgeting system can be applied where premiums have a dedicated envelope.
Choosing the right non-life insurance provider is vital. Due diligence is necessary. Scouting the market helps. Financial performance gives information about the financial stability of the non-life insurance company. Qualitative information like the management team, customer service reputation and business plans provide insight about the agility of the company. Once the non-life insurance provider is chosen, a study of benefits in relation to costs must be undertaken to ensure that net marginal benefit is positive.
Protection against life risks is a necessary step in ensuring that emergencies do not wipe out our finances. Non-life insurance will give us the opportunity to eventually save more and invest more for the long haul. As Filipinos become more financially-secure, the nation will find itself in a better economic position.
Gemmy Lontoc is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 100th RFP program this March 2022. To inquire, e-mail info@rfp.ph or text at 0917-6248110.