Image via WikipediaFinancial IQ Philippines Quick Hit(s):
Life insurance's primary objective is to cover unexpected loss of earnings due to untimely loss of a family member(s). Wealth protection is another excellent feature but not the primary goal.
Why buy lots of life insurance when It’S better not to spoil kids with too much money?
Thanks for your interesting columns and very pragmatic insights on so many diverse topics. On life insurance, my hesitance in buying too much of it is my idea that maybe it’s not good to bequeath too much material wealth on our kids so that they won’t be too comfortable or have too much and become weak in character. A lot of rich kids are weak in character. I am a self-made entrepreneur; my parents died when I was young and I grew up with my uncle. I had to earn every centavo through hard work, so I don’t want my kids to have too much. Why buy lots of life insurance? Even the world’s richest investor, Warren Buffett, believes it’s not good to leave too much wealth to kids, isn’t this correct?
Jefferson Allan Tiu Chan, Quezon City, 48 years old, businessman
Answer
Thank you for your question, Mr. Chan. As a parent I totally agree with you that our children must learn to provide for themselves; to become self-sufficient in life. This objective does not have to be in conflict with obtaining life insurance for their welfare and protection.
As parents we also care deeply for the future of our children, so it’s just a matter of balancing these two goals. You decide how much life insurance coverage is appropriate for your family. Insurance is primarily sought to provide a family with continuing income after a breadwinner’s death, but that income doesn’t have to be perpetual. You can opt to acquire enough insurance to provide your family with income only for a certain number of years. This is not intended to enrich your children or even for any money to be given directly to them.
For instance, if your family needs P50,000 monthly for its normal expenses, and you think they will need one or two years to adjust to your loss, then you can just secure approximately P1.2 million in life insurance coverage (less than the value of many new cars) that will be completely consumed in two years, by which time they are expected to fend for themselves. This would hardly be considered spoiling or pampering your children.
Life insurance is not only used to create wealth, but to preserve as well as transfer it. Leaving behind life insurance to pay for estate taxes enables your family to inherit your assets without any loss of value. The only thing you would not want to do, based on your comments, would be to have life insurance add more wealth for your children.
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