Saturday, January 31, 2009

Why people love and hate life insurance

During my almost six years of affiliation with Sunlife Financial Services, I came to know the different reasons why people have insurance policies. Some got pure intention , and others unfortunately bought for the wrong reasons.

Let me share you the most common noble reasons why people get life insurance:

1. "To unburden my family." Individuals recognize the fact that they have responsibilities and commitments to their dependents. They know that they have a major role in fulfilling their family's dreams to have a good education, and the magic words there are good quality of life. All of these have costs and it's the coverage amount which will partially help the members move on towards their goal - alone.

2. "To be shielded from certain taxes." If your beneficiary was declared as irrevocable, the cash proceeds are tax free. We are talking here of about 20% savings which he family can use for estate tax payment.

Estate tax surprises the asset-rich families. They never took into consideration the amount of cash just to transfer the properties to the heirs. In the Philippines, it can be as much as 20% of the market price of the properties. Insurance is the miracle product which solves the "cash flow" requirement of asset preservation.

However, there are some who hate insurance and below are the common objections:

a) "Insurance is a poor investment and it's better to invest in a the bank." I wonder what did the agent tell the client. Insurance products, whether life or non-life, are designed to protect against risks. As the time evolved, these products were linked to investments to attract the market. It's never positioned as an investment which will have the returns similar to that of stocks.

b) "I have enough cash that I do not need insurance anymore." Times do change and people need to realize that good times are permanent. That's why we have such thing as "there is always the first time." When crisis strikes, people normally can be caught unaware. And since cash is still the king in both good and hard times, it is still a prudent situation where you have a fallback just in case things don't work out the way it should be.

Friend, there is no right or wrong for these reasons. One is entitled to each and his own values and beliefs. But as a financial planner, I still encourage people to consider life insurance as part of their portfolio. You will never know what is in stored for you and your family- tomorrow.

Do you have any insights why people buy and do not like life insurance? Please feel free to comment so we can learn more from each other.