Where to put your money: Life insurance

ASK any financial-planning expert, and he or she will immediately agree on the importance of being insured. The peace of mind offered by having insurance is plain, simple and undeniable. Many Filipinos, however, still refuse to have one.

According to the Oxford Business Group’s (OBG)  The Report: Philippines 2014, the Philippine insurance industry is open, thriving, growing and competitive. It is even seen to be “crowded and too competitive.” Ironically, it is also widely acknowledged that the sector should be more inclusive, as it currently serves only a small percentage of
the population.

At the end of 2012, the market comprised 79 nonlife-insurance companies, 29 life insurers and one reinsurance firm, a signal of an overall healthy sector. Still, there is a need to develop more products and packages, as people age and seek ways of savings, while the country becomes wealthier and more educated.

OBG reports that the median age is 23, and only 23 percent of the country owns life insurance. According to a central bank survey conducted from 2008 to 2010, only about 29 percent of households had health insurance, and almost 94 percent of those were under the state’s Philippine Health Insurance Corp. program.

The remaining 71 percent may either not feel the urgency to be insured as soon as possible, or not feel the need to be insured at all and just put their money in other forms of investments instead, such as in stocks or in the bank.

In fact, the Philippines is among the lowest-ranked countries in terms of population with life insurance, and this can be attributed to a number of factors. It may be that because death is still a very sensitive topic to discuss and acknowledge. Also with the high percentage of poverty in the country, the Filipinos have financial struggles to face other than paying monthly premiums. Insurance providers have also yet to reach the grassroots communities to provide them not only with products, but also with the knowledge.

But while the importance of being insured cannot be more emphasized, it still depends on the preference and financial capability of individuals. As being covered by an annually renewed or life-long life insurance entails monthly premium, which cannot be turned into cash when not consumed, many Filipinos—especially the younger generations—do not feel the need to avail themselves of one. This Filipino culture may even be considered as underpreparing for the future.

Indeed, if one’s lifestyle is seemingly steady and finances are not a present worry, getting a life insurance may be one of the bottom priorities. Who would want to engage in something that will take effect only upon one’s own accident or death?

However, this is mostly, if not always, a faulty reasoning, and may even make it worse for people’s financial health. If one is faced with life’s uncertainties, having an insurance is a sound weapon to get through.

Benefits of having a health insurance

IN fact, life insurance is a necessity rather than just a luxury. Nobody plans to be involved in an accident, or, worse, perish; but these are inevitable, and people should, therefore, be prepared to protect their loved ones and help them achieve their family goals even if they are not around them anymore.

When getting a life-insurance policy, people are getting a contract with the issuing insurance provider, which guarantees that upon the death of the insured, the provider will pay a present amount to the beneficiaries. It will pay the beneficiaries directly, so they receive the funds without delay.

Without the protection of life-insurance coverage, loved ones may need to drastically alter their lifestyle if the unexpected should occur.

Money Talk PH, an online financial-planning magazine often sought for financial advice and research, lists down a number of benefits of having a life insurance, particularly for Filipino families.

Aside from the emotional and psychological impact a loss of a loved one may bring, the dependents will also experience a financial impact, especially if the departed is the breadwinner of the family. “Without the breadwinner’s salary, the dependents will face the problem of where to get money to pay the bills, to pay school bills, to buy food, to pay mortgage or to pay medical and funeral bills left. Financial problems could weaken the stability of the surviving family and could cause a lot more problems in the long term,” it said.

Most probably, this financial shock will be covered by taking from savings, or worse, applying for loans, which increase over time when not paid immediately. The lack of insurance is undeniably a fiscal burden for the family of the uninsured. On the other hand, having one will give them a safety net in the face of crisis—a sure fallback whatever happens.

The money from the life-insurance policy will serve as replacement to the breadwinner’s lost income. This way, the money will not easily run out but instead provide a continuous source of income for the family.

Life-insurance companies also offer educational plans in the form of endowment and variable universal life plans, which will help finance the children’s college education. Moreover, in the event of the death or total permanent disability of the payer, the education plan is already considered fully paid. This is a benefit most Filipinos will get, as education is considered to be the greatest inheritance parents can give to their children; and with the death of the breadwinner, uncertainties regarding the children’s education would also entail uncertainties for the rest of their lives.

The life insurance may also cover for financing the purchase of a home or capital for business.

Death or accidents should also not mean debt. Final expenses, including medical and funeral expenses—both of which are becoming increasingly expensive—may leave the family in huge debt. Without life insurance, savings left for the children’s education or daily expenses may be used up immediately. “Dying is expensive in the Philippines, so it makes sense to be prepared financially,” Money Talk PH said.

“It’s funny that the government still hunts you down even in the afterlife. The tax agency requires your surviving family to pay estate tax, or else your properties and other assets will not be distributed to them,” it further said.

Indeed, paying the tax is not a cheap endeavor, and the heirs, should they be faced with shortage of finances, might be forced to sell a portion of the property, and even below the market value, just to be able to pay the tax. Otherwise, this may result to penalties, including the forfeiture of their ownership to the property of the uninsured. Having readily available cash through a life-insurance policy can rectify this situation, leaving family heirlooms and other important assets intact. Life-insurance will ensure that the property one worked hard for will be passed on to the heirs wholly.

Furthermore, some life-insurance providers also include savings or investment features for retirement. If one does not die too soon, the insured will still benefit from the life-insurance policy in the form of maturity benefits, cash values and dividends. These are in addition to other retirement-fund sources such as the Social Security System, Government Service Insurance System or company-sponsored retirement plans, making it easier to live through the retirement years to pay not only for food, bills and medicines, but also for luxury one deserves.

Whole-life-insurance plans also give the insured the opportunity to withdraw money from the accumulated cash values and dividends to finance emergency expenses. However, this cash value is not as easily accessible as an ATM savings account, so one cannot touch it easily but only during real emergencies.

This idea of having an additional monthly fee to pay for on top of everyday expenses and bills may seem like a huge burden. Some people even opt to put this amount on other investments, such as mutual funds and stocks, for their money to grow; but all these will only turn into ashes when they become disabled or die. So, instead of viewing the monthly premium as a burden, it should be viewed as an opportunity to save and secure the loved ones.

Ultimately, what people pay for when getting a life insurance is the peace of mind of having a safety net for the loved ones should worse comes to worst. The last thing a person wants to experience is to grieve for a loved one’s death and, at the same time, think about financial obligations.

Better now than later

WHEN it comes to getting life insurance, later is never better because death or disability may come sooner than expected.

This is why millennials should take advantage of their youth and good health to be insured. As people get older, they become more prone to sicknesses, resulting in more expensive annual premium for the same amount of coverage when the insurance is bought at an earlier stage.

Some would say that the best time to be insured is when a major life event occurs, such as new home purchase, marriage or birth. But regardless, the sooner one secures a life insurance, the better because it will cost more; and it may even be too late to get one at all.

At the end of the day, securing a life insurance is all about being prepared, protecting the loved ones and having the peace of mind, no matter the age, health situation and financial capacity. After all, it is the peace of mind which no amount of money can ever pay for.

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