Thursday, February 14, 2013
Thursday, February 7, 2013
Types of Life Insurance
You've probably wondering "What's the best Life Insurance for me? It is important to understand that "life insurance" has various types. Knowing the different types will help you get the right plan. May this article help you find the right one for you. :-)
In the Philippines, we use to have TRADITIONAL LIFE Insurance, but as time goes by, Insurance companies began to evolved and start offering NON-TRADITIONAL Life Insurance.
TRADITIONAL LIFE INSURANCE
- TERM LIFE INSURANCE provides "pure" life insurance coverage for a specific period of time. It is the cheapest form of insurance protection because it has no saving component. There is no cash value or dividend.
- WHOLE LIFE INSURANCE provides coverage for your whole life or until age 100. It also requires you to pay for life. It combines protection and savings. It provides death benefits (face amount) and living benefits (cash values and dividends). Living benefits can be obtained while you are still living.
- ENDOWING LIFE INSURANCE provides coverage for a specified period. They grow cash values very fast. They can build future funds for a definite purpose. The premium paying period is shorter than the whole life insurance and the insurance amount is paid out within a certain period (5,10, or 20 years) or at a certain age of the insured after which the policy matures.
NON-TRADITIONAL LIFE INSURANCE
- VARIABLE UNIVERSAL LIFE/ VARIABLE LIFE INSURANCE/ VUL is an insurance plan with benefits directly linked to the performance of the unit of investment fund/s you choose (usually equity fund, balanced fund, bond fund, money market funds etc.) It's actually a combination of TERM Life Insurance with Mutual Fund Investment. However, unlike Whole Life Insurance, VUL does not have guaranteed cash value as well as dividends. The face amount and death benefit may vary based on how the investment portion performs. As an investor, you reap all the returns but bear all the risks. But you can minimize these risks through PESO COST AVERAGING. This kind of investment is ideal for long term.
To give you an overview regarding this product, I will share you the video from Pesos and Sense (Episode 3 on the topic of Insurance).
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INSURANCE
Monday, February 4, 2013
How much insurance do you need?
It is your job to provide food, clothing, shelter, schooling, medicine and other things for your loved ones; you do this while I lie in your strong box...
I have faith and trust in you. Out of your earnings will come the cost of my upkeep. At times, I may appear to be worthless to you -- but someday (and God knows when) you and I will changes places.
When you are laid to rest, I will come alive and do your job. I will provide the clothing, shelter, schooling, medicine and other things your family will continue to need --just as you are doing now. When your work and toil are done, mine will begin. Through me, your hands will carry on.
Whenever you feel the price you are paying for my upkeep is burdensome, remember that I will do more for you and your family than you ever can do for me.
If you do your part, I will do mine...
Sincerely Yours,
Your Policy
Perhaps you are wondering how much insurance do you need, or if you already have an existing coverage, Would you know if it's enough already?
But we all have different kinds of financial need. We don't have exactly the same goals and personal circumstances (age, marital status, number of dependents, etc.). Let's categorize each need as follows:
ON PROTECTION. The need to secure ourselves "IF" something happens to us.
ON EDUCATION. Kids would not stop growing and as they grow, parents will be meeting a lot of expenses. There is a need for educational funding.
ON RETIREMENT. People will grow old, we all need retirement fund. If you retire at age 65 and live up to age 85, do you have enough funds to sustain your retirement years?
ON CRITICAL ILLNESS. If you are diagnosed with critical illness, your medical bills may be more than the money you have in the bank, your salary stops, but your family must go on living.
ON PROTECTION
ON PROTECTION. The need to secure ourselves "IF" something happens to us.
ON EDUCATION. Kids would not stop growing and as they grow, parents will be meeting a lot of expenses. There is a need for educational funding.
ON RETIREMENT. People will grow old, we all need retirement fund. If you retire at age 65 and live up to age 85, do you have enough funds to sustain your retirement years?
ON CRITICAL ILLNESS. If you are diagnosed with critical illness, your medical bills may be more than the money you have in the bank, your salary stops, but your family must go on living.
At this stage in your life, how would you prioritize those financial need?
What's concerns you the most? Let's discuss each need and give an example.
The example above illustrate a household spending P50k per month. This breadwinner requires P15 Million in protection fund. Why P 15 Million ? Because if the surviving
dependents received the P 15 Million proceeds, and invested it in a 4% bearing
instrument, then it will generate P 600,000 in interest income per year – which
then “replaces” the annual household expenses of the family. That’s why we call life insurance as an
“income replacement” tool.
However, we must deduct any existing liquid assets &
insurance of the breadwinner. Since the breadwinner already bought a P4 Million Life Insurance Protection, he is still under insured though. In this
example, there is still a shortfall of P 8 Million.
This amount is now what we call the “insurance gap”... that is the amount that the breadwinner still need in order to reach his financial goal, for his family's protection...
On Education
To ensure our children’s future success, parents aspire
for the best education for their children. If the cost of education remains the
same, perhaps your current income can support quality education for your
children as they grow.
But the challenge for most parents would be having
enough savings to keep up with the rising cost of quality education. Consider
the cost of college education by taking a look at some schools in the country
today. As per CHED tuition fee alone is increasing at 12.25% every year. Education cost continue to rise. This simply shows that money in the bank (which incurs an interest of about 1-2% annually) is not enough to cover up the expenses for education.
 |
| In the Illustration above, Juan dela Cruz need to start saving P12,500 every month and invest it in an instrument that will give him 8% return per year for 17 years to reach his P5.2 Million goal for his son's College education. |
On Retirement
There are 3 reasons:
1.) According to National Statistics Office (NSO) 1997-2007 Census. Philippines' average annual inflation rate for the past 10 years is estimated at about 6%. To illustrate further, the purchasing power has gone down from P1,000 in 1996 to P558.12 in 2007. Because of this we must make sure that our INCOME, SAVINGS AND INVESTMENTS, grow at least 6% every year. Otherwise, we will be reducing our purchasing power.
2.) Filipinos live on an average up to 70 years old. Some Filipinos start to think about retirement at age 28 but does not have the drive or means to prepare for it.
3.) SSS/GSIS - is not enough to sustain our retirement needs. We cannot rely on government pension nor employment benefit plans to sustain our lifestyle.
If you keep on ignoring the truths about retirement, then where would
you find yourself later?
Out of 100 Filipino
2 - are financially independent
45 - depend on their relatives
30 - rely on Charity
22 - continue to work
On Critical Illness
It will hit us the least we expect it.
The 3 leading causes of death are due to
CRITICAL ILLNESS including:
Diseases of the Heart ( Heart Attack)
Cerebrocascular Diseases (Stroke)
Malignant Neoplasms (Cancer)
How much would it cost to pay for medical bills? Professional fees? Medicines? Laboratory, surgery and operation cost?
Rough Estimates:
Heart By-pass - P 500,000
Chemotherapy - P 400,000
Hospital (R &B) - P 2,000/ day
Professional fees - P 600 (routine check up)
- P60,000 - P70,000 major operation
*In life we have two major problems when it comes to money. According to Xuan Nguyen, you can either die too young or live too long...
If you die to young, you'll be leaving behind people that are dependent on your income. What will happen to them? You need to provide them even after your death.
If you live too long, and live 30 years after your retirement, you will need to provide for your old age.
Both problems need to be solved, and that can only come in buying a
Life Insurance
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INSURANCE
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