Image via WikipediaFinancial IQ Philippines Quick Hit(s):
1. Primary usage of insurance is to serve as protection for family.
2. Additional benefit is for estate planning particularly for high net worth individuals.
Here are some readers’ questions with Insular Life executives’ advice:
1. Ace Cruz, 44 years old, director of Hollywood indie film Outrage, actor, married, graduate of the University of Southern California
I grew up in California and am now based here in Los Angeles. What happens in the Philippines if a small life insurance firm goes down? Isn’t that scary for clients? Should buyers of life insurance better patronize the biggest and most financially strong life insurance firms? In the US, life insurers have strong foundations. Another question: How is life insurance sales as a career in the Philippines and how would people start? Because my father, Bing Cruz Herrera, used to be a life insurance agent here in the US, and they had goals and they always think positive. You and Philippine STAR should be congratulated for partnering with Insular Life for this series because I believe saving money and investing are important. I urge your readers to put money into assets instead of liabilities like luxury cars, etc. Isn’t this correct?
Answer
You are entirely correct in advocating that people should prioritize assets over liabilities. We at Insular Life explain the proper use and allocation of money by trying to make people more aware of their key life stages and how they should manage their financial resources in order to be more secure. For instance, when one is still in the parenting life stage, he/she may incur debt in the course of providing for the needs of the family. Because of this it is vital that he/she also create wealth that will take care of these obligations moving forward or in the event that something untoward happens to him/her.
Financial risk protection is precisely the purpose of life insurance, which in our view is an asset one must acquire during such a period, not only because it can erase debts should the breadwinner unexpectedly pass away, but also because it accumulates money over time that can come in handy during the family’s formative years. In establishing a life insurance estate, people must make careful and fully informed decisions about the company or companies to deal with; after all, these institutions will be their lifelong partners in ensuring the financial well-being of their loved ones. Companies with sufficient capital, assets and net worth relative to the amount of risk they take on should be seriously considered. In addition, one must also take into account the company’s reputation and track record. Philippine-based life insurance companies are properly regulated. The Insurance Commission provides information and data on each insurance company which you can readily look up in its website.
Finally, we strongly believe the life insurance selling career has a lot to offer not only in terms of income but, more importantly for us, in the opportunity to do something truly worthwhile that makes a lasting difference in the lives of fellow Filipinos and preserves our family institution. In our company we constantly emphasize the vital importance of the life insurance mission, especially in our country where so many of our people struggle to make their future secure. We have a particularly strong desire to help millions of Overseas Filipino Workers in their personal financial management. It is for these reasons that Insular Life has been of continuous service for nearly 100 years now, and we are just as passionate about the next 100 years!
2. Sofia Maria M. Araneta, 27 years old, Bacolod City
Suggestion: continue your series on life insurance to include other aspects of money issues and investments because these topics are relevant, and there are many well-off people with investable funds. Even ordinary employees can invest. My question is this: If a person is super-wealthy, like born to a billionaire parent or a rich family, is life insurance still a need since one already has so much money to pass on to heirs? Why insure if you are already rich and your heirs have no worries about money even for the next 100 years?
Answer
Since the principle purpose of life insurance is income continuation for the family in case of untimely death, permanent disability or retirement of the breadwinner, as long as the family or heirs continue to have sufficient financial means despite any of these circumstances, then life insurance would not be that essential to them. As with everything else, there are always exceptions, but let me hasten to add that the percentage of such “billionaire” individuals and families is extremely small. Moreover, as earlier stated, income continuation is the principal purpose but is not the only reason for getting life insurance.
Let me give you another that makes sense to the wealthy and privileged class. We all pay taxes for everything we earn and own. When the time comes for our families to inherit our properties and other assets they are required to pay corresponding estate or inheritance taxes. Rich people must provide for this need rather than think of ways and means to evade the payment of rightful taxes. Of course, since they are affluent they can even now just set aside already from their own funds the money that would be needed for the family to pay inheritance taxes. If they do that they would not be able to use it for other purposes such as plowing it back into their business in order to make even more money.
Successfully rich people are masters of using other people’s money to further their wealth (I say this in a positive sense). They know how to use credit, for example, and would readily borrow money and pay interest if they could make that money earn more than what they would pay for it. Similarly, if they can free up their funds meant to pay future inheritance taxes by taking out life insurance to pay for the same, they would have the advantage of using their own money for better purposes while having the insurance company’s money take care of paying their estate taxes when the time comes. And even if they have to pay premiums for this coverage, their expense would be deemed far less than their opportunity loss if they tied up their own funds. This is the basic tenet behind estate planning and conservation.
When you have worked a lifetime to accumulate wealth for your loved ones, would you want them to lose a significant portion of that to estate or inheritance taxes when you can just as easily cover your tax liabilities through life insurance? The point is, life insurance serves a variety of purposes including legacy building (another favored reason for wealthy persons so they can donate to their chosen charities or fund their foundations) and more wealth creation, among others. The space limitations of this column prevent me from giving you a more comprehensive answer, but we would be happy to personally explain these aspects of life insurance more to you if you wish.
