How do you know that you need life insurance? When is the best time to get insured? What stage in your life should you buy life insurance? Whether you already have a policy or you are still thinking of getting one, these are questions that you might have when you come across life insurance products available in the Philippines.
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Life insurance as income protection and risk management
Why do you need life insurance? It actually has two goals: income protection and risk management.
Income protection means that it is meant to replace the income lost when a breadwinner dies. By receiving a death benefit, your family can live reasonably after you’re gone. It can be used to pay for the education of your child or pension for your spouse.
Risk management means that you will not leave your family in a bind. For example, if you die today, your spouse or family might be pushed to make necessary but difficult financial decisions. If you have debts or estate taxes, they may be forced to sell your assets in order to pay your liabilities.
That might leave little to nothing to be passed on to your heirs.
There is a third purpose: to build wealth. With the rise of products that include cash values or investments, it can be a financial planning strategy to save and grow your money over time.
Below is the list of Filipinos who may need a life insurance policy. I wrote it in a way that it follows people in different stages in life: from children to the elderly. The last part talks about other ways that an insurance policy can be used such as as collateral or as a business strategy.
In each life-stage, common scenarios are covered so you can better understand when it is a good time to buy. Factors that you need to consider are also included, especially those that become a reality when you hit a certain point in your life.
The goal is to inform and help you determine the best product to get from a trusted insurance company.
Insurance for children
There are two answers on the question on whether it is fitting to get a life cover for kids. One answer is no. It is argued that children don’t earn any income and don’t have any heirs. Thus, they don’t really need it.
However, there are those who point out that children do need life insurance for the following reasons:
- protect the family from costly medical care in times of critical illness of the child
- lock in insurability
- take care of end-of-life expenses
- pay for any taxes
- help cope with the loss
- give the child a head-start in life
If you do decide to get one for your kid, make sure that you get adequate health and life cover first.
Insurance for young, single Pinoy
The need for coverage among single people is normally lower compared to other age brackets especially for those who are still in school. The only factors would be the risk of being critically ill and funeral costs.
A life insurance can be an option if you want to lock in your insurability. That means, you may have strong hereditary risks of developing certain diseases and you want to be insured early on in life.
Saving on insurance cost can also be a factor. The younger you are, the cheaper will be the cost of your premium. By getting a whole life insurance policy, you can lock in a cheaper rate than when you get a policy when you are older.
Also, your parents can also go open a policy with a savings mechanism. That means, you can get a policy that insures your life while allowing you to grow your money over time.
This could be a strategy particularly when, early in your life, you want to do something by the time that you graduate. The returns that you may get from the contract might be used as capital when you launch a business or decide to pursue your passion.
Insurance for working, single adults
When you are a single Pinoy and already working, your insurance need increases due to the following:
- You want to be protected from critical illness.
- You are starting to earn an income.
- You are slowly building wealth.
- You might incur debts especially when you are acquiring certain assets that require huge capital (i.e. real estate).
- Your family may depend on you for their needs.
- You want to secure business partnerships.
- You want to have funds for end-of-life care and other expenses.
As you take on more responsibilities and as you go through life making key financial decisions, a life insurance becomes even more an increasing need.
On the other hand, even when your company provides an insurance policy as part of your employment contract, you will still need to get one for your own.
Because your insurance ends when you stop working, you can be in a risky situation. You can lose your job. You might also decide to change career. Studies have shown that nearly half of Pinoy millennials (40 percent) quit their current jobs in two years.
When you don’t have your own cover, you will be uninsured and unprotected during the times that you are unemployed and out looking for a job.
Also, when you are retired, your insurance from the company gets terminated. This will leave you vulnerable to sudden, huge expenses brought about by old age, sickness, or untimely death.
Insurance when starting a family
Starting a family is a big decision. The minute you decide to marry your significant other, you insurance need increases.
You will have to start a policy, increase an existing coverage and/or include your (future) spouse in your policy. This is so in order to make sure he or she will not struggle with money and be able to live reasonably when you pass away.
The same is true with your (future) spouse too. He or she needs to start a life insurance, increase any existing cover and/or declare you as beneficiary.
If you are the sole breadwinner, you may need to get a policy for your (future) spouse. He or she may not bring in income to the family, but his or her sudden passing will affect you deeply and financially.
One other thing to consider in determining how much cover you now need are the assets and debts that you both bring to the family. Without financial planning, you or your spouse may be saddled with taxes or pushed to sell off properties to settle unpaid debts should either one will be gone too soon.
Insurance when having kids
Having a child is magical. Just like starting a family, having and taking care of your own kid would require you to open insurance (if you haven’t already) or review your existing cover.
If you are a single parent, your sum insured must be adequate to cover your kid’s childcare, education, and future.
A couple must add the spouse or start a separate policy particularly when there is only one breadwinner in the household.
For people with large estate, check possible taxes in case you pass on. Make sure as well that your liabilities are factored in so those who will be left behind wouldn’t end up selling any or all of your assets instead of giving them to your heirs.
Insurance for Pinoy parents
Getting life insurance for elderly parents can also be a sound financial strategy.
When they get sick or suddenly pass away, they can be a burden to the family. This is true if they depend on their children or whose net worth wouldn’t be enough to cover for critical illness, estate tax, debts, death, and other life’s risks.
If you are the one paying for the policy, you can make yourself the irrevocable beneficiary. In that way, you get a tax break once the policy is claimed. It will also allow you to make any needed changes on the account at anytime.
Remember though that getting a policy to insure them might be costly at this point. The earlier you start, the cheaper the premium would be.
Insurance for elderly Pinoy
If you are elderly, you may not need life insurance. But there may be situation where you can consider it necessary. For instance, you may not have funds to pay for taxes, debts, or funeral.
Bear in mind that buying a cover at this point in your life may not be easy. First, it could be difficult to find insurance companies in the Philippines willing to sell you one. They may refuse to insure your life because of your advanced age, medical history, or the state of your health.
Perhaps the most important thing to remember is that insurance for elderly like you is not cheap. This is because you are likely to get really sick or die at your age. That’s why your premium may be quite higher compared to that of a younger person with the same cover.
Before getting insured, check if there are available products in the market that would be suitable for you.
Insurance for homeowners and business partners
A life insurance can be used as collateral for mortgage. For homeowners, you can assign the policy to the bank or lender. When you die, either part or the all of the proceeds will be given to the company to pay for your debt. This will ensure that when you pass away, the debt is settled.
It protects your property from being seized. It also prevents your family from being forced to borrow money just to retain ownership of the house. You can then be assured that your home will be passed on to your heirs. If you have partners in your business, life insurance can also help ensure the business moves forward even when one of you dies.
But why does it make sense to buy a cover for all business partners? Upon their death, their family members can claim interest in the organization. This can become an issue when you don’t have good working relations with them. By getting all of the partners insured, when one dies, the other can receive death benefit which can then be used to buy the deceased’s interest in the business.
How to compute your insurance needs
The amount of cover that you require is whatever is the amount that is left after you subtract your total assets from liabilities and other insurance needs. For a discussion about assets and liabilities, you may check this financial planning article on knowing your current financial status.
|Real estate||Mortgages||Family’s income replacement|
|Checking accounts||Consumer debt||Child’s education|
|Savings accounts||Personal loans||Final expenses such as end-of-life care, etc.|
|Retirement accounts||Auto loans||Charity|
So the first step is to get the difference between asset and liability. The total insurance need is obtained by adding the difference with Other needs as specified on the third column on the table.
You can see that family’s income replacement is first on the list. This is the amount that they depend on that go towards their expenses, and most often this is obtained from the income that you bring to the household (and would be lost should you suffer critical illness or meet untimely demise) or the money necessary to allow your family to live decently. The total amount is then computed from this annual required income multiplied by the number of years you’d want the insurance to provide.
Next is the child’s/children’s college education. You’d want them to be able to go to school even when you’re no longer healthy enough or around to provide for them.
The rest of details on the column include final expenses (medical care, mortuary, etc.), inheritance that you’d want to leave behind for your heirs, and donation to charitable institutions and social advocacy groups as your legacy.