Image via WikipediaFinancial IQ Philippines Quick Hit(s):
No, it is not. Aside from protection, it also serves as wealth preservation.
Is it bad to buy too much life insurance?
I am a widow. Do you think it’s a bad idea to buy too much life insurance for heirs who will not be poor anyway — is there such a thing as too much or excess life insurance? Warren Buffett seems to think that bequeathing too much money to heirs is not good. Do you agree with that? I don’t have problem kids, but can parents legally disown a disobedient kid from his inheritance under Philippine law?
Elaine Crisanto-Ramirez, businesswoman, Alabang, Muntinlupa
Answer 1
Life insurance is meant to indemnify loved ones, creditors or those with a financial interest in the insured for the economic loss they would incur when he passes away. There is also a general principle in insurance risk management that a person cannot unduly or excessively benefit from the said loss. Hence, it is possible to have cases of “over-insurance” when the amount of coverage is grossly disproportionate to the value of the actual financial loss. It is also for this reason that insurance companies do financial underwriting; that is, they assess the reasonableness of the amount of insurance being applied for vis-à-vis the financial needs of the intended beneficiaries. For example, if someone wants to buy life insurance in order to ensure a continuing monthly income for his family for a period of five years, assuming the current monthly expenses of that family are, say, P100,000 and adjusting for annual inflation of five percent, the amount of coverage needed would be approximately P6.6 million. That amount would be understandable and reasonable, but if that person applies for P20 million for the same purpose, that would be considered excessive from a financial risk perspective. Getting life insurance for one’s heirs ultimately depends on one’s purposes. For instance, they may inherit properties that would make them wealthy, but they might still need some amount of inherited cash for their usual needs or to start a business so they could be financially independent. I hope I have answered your questions with these examples
Answer 2
I believe the amount of inheritance or the proportion of the estate one would want to give to his/her heirs depends on a lot of factors that the said owner of the estate considers to be important (e.g. support or education of the heir, philanthropic or charitable activities, etc.). But of course, any estate owner would want that whatever he/she gives to his/her heirs would not be wasted but put to good use. If the inheritance will only serve to spoil the heir, then it might not be a good idea to bequeath too much of it to this heir or grantee.
In relation to your next question about disinheritance, our law on succession gives parents the right to disinherit any of their children and descendants but based on grounds expressly stated by law and only in accordance with prescribed procedures. Article 919 of the Civil Code of the Philippines enumerates the sufficient causes for the disinheritance of children and descendants, legitimate as well as illegitimate. Examples of these are (1) “When a child is found guilty of an attempt on the life of the testator, his or her spouse, descendants, ascendants”; (2) “When the child or descendants has been found guilty of the adultery or concubinage with the spouse of the testator”; (3) “Maltreatment of the testator by word or deed, by the child or descendant”; (4) “When a child or descendant leads a dishonorable or disgraceful life”; etc. There are other provisions of the Civil Code that provide for the specific legal requisites for a valid disinheritance. These legal requirements on disinheritance are strict due to the fact that this is the only exception to the rule that compulsory heirs cannot be deprived of the legitime. Thus, as in other legal matters, we suggest that a lawyer be consulted for the appropriate legal guidance.
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