Insurance is a critical component in your financial toolkit that is most often ignored. Here, we will examine a few important insurance categories and how to choose the best insurance product that fits your requirements:
Financial Planning
Choosing an insurance product actually starts with smart financial planning. Financial planning is the process of meeting one’s life goals through the proper management of finances. Life goals, which usually involve necessities of life, can include buying a home, saving for child’s education, planning for retirement or estate planning.
Insurance is one category of products that can help you in two ways – saving and investing towards your chosen goals and by providing essential “back-up” during times of contingency.
Life Insurance
This is a type of insurance that pays out a certain sum of money to the insured or their beneficiary(ies) upon the happening of a certain event to the insured. Life Insurance helps cover risks like Premature Death, Illness and Permanent Disability. It can also be used for providing income after retirement.
Some of the questions that you should consider before deciding on an appropriate life insurance policy are
- Are you looking at life insurance as retirement planning or is your objective is to provide for your family?
- What is minimum standard of living that you would like your family to maintain after you are gone?
- What is the level of education that you need to provide for your family?
- Is your spouse’s income adequate enough to provide for the daily expenses of the family?
- Do you have any loans, mortgages or business debts that need to be paid back?
- Are there any assets that you have that you can leave behind?
Tips on getting the right life insurance
* Determine how much Life Insurance is enough or needed by you and your family. Consider buying Life Insurance that is equal to 5 to 7 times your current annual gross income.
* Choose the right insurance company. – Verify/validate with the Insurance Commission if the company is licensed to do business. Check the company’s financial strength.
* Pick the right insurance agent. – An insurance agent should be willing and able to explain all details of the policy/ies being recommended and which you are considering. The agent should be licensed as well.
Types of life insurance policies
Term– A term policy is one that pays the face amount only in the event of death within a stated number of years. Term insurance is designed for use in situations where a person needs maximum protection at the lowest premium outlay.
Whole Life – Whole Life will pay the face value whenever death occurs. It gives coverage over the insured’s entire lifetime. From a premium payment viewpoint, there are two kinds of whole life:
▪ Ordinary or straight life – Premiums are payable for life. Flexible type of life insurance, can easily be adapted to changes in the insured’s financial situation or family responsibilities.
▪ Limited payment life – Premiums payable for a specified number of years only. After the premium – paying period, the policy becomes paid up for its full face amount. However, it does not mature for the face amount until age 100. This kind of insurance can be used to create an estate for bequeathal after the insured’s death.
Endowment Insurance – Endowment policy is written for a definite number of years ( not for life ) and guarantees to pay the face amount to the insured if he survives past the maturity date and,
to the beneficiary if the insured dies before reaching the maturity date.
And when a disability waiver of premium benefit is added to an endowment, the plan also becomes self-completing in the event of the insured’s permanent disability. An endowment is a convenient way to amass funds for definite objectives, such as a child’s education, for retirement, travel etc.
Variable Universal Life Insurance – VUL are a combination product having life insurance and investment components. A portion of your investment goes towards providing you with a life cover while the rest can be invested in an investment fund(s). You get both guaranteed insurance benefit and fund accumulation.
You also have the option to increase your life insurance coverage and investments through additional premium payments called Excess Premiums. In case of death of the insured, proceeds for irrevocable beneficiaries are exempt from estate taxation. You can also partially redeem from your investment at any time, especially during emergencies, subject to the guidelines of the insurance company.
Health Insurance
Health insurance policies insure you against several illnesses and guarantee you stay financially secure should you ever require treatment. Generally, health insurance products from private insurers fall under two categories: Health Plans that provide coverage against a range of health issues and Income Plans that provide a cash outlay when you are confined to a hospital bed.
And, there is PhilHealth. PhilHealth or the Philippine Health Insurance Corporation is a tax-exempt, government-owned corporation attached to the Department of Health. It administers the National Health Insurance Program to provide health insurance coverage and ensure affordable healthcare services for all citizens of the Philippines.
PhilHealth does not directly provide healthcare services; rather, it has tied up with both private and public healthcare providers where registered beneficiaries can get appropriate healthcare.
Micro-insurance products
Microinsurance is an activity providing specific insurance, insurance-like and other similar products and services that meet the needs of the low-income sector for risk protection and relief against distress, misfortune and other contingent events.
Microinsurance product is a financial product or service where:
¤ The amount of premiums, contributions, fees or charges, computed on a daily basis, does not exceed five percent of the current daily minimum wage rate for non-agricultural workers in Metro Manila; and
¤The maximum sum of guaranteed benefits is not more than 500 times the daily minimum wage rate for non-agricultural workers in Metro Manila.
Insurance Commission’s statistics reveal that as at end 2015, some 30m of the 38m Filipinos covered by insurance carried some form of micro-insurance.
