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.

5 Financial Planning Tips during a Financial Crisis

Having a balanced portfolio can bring you one step closer to achieving financial freedom regardless of where are you in the life cycle. When risks are recognized, the effects of crisis is minimized. Availing life and health insurance, creating an educational fund and setting up a retirement plan provides you a buffer against the economic effects of dying too soon or living too long.

Have a personal vision. Enumerate your three important lifestyle dreams. Do you envision your children studying in an ivy league university ? Do you want to be retiring by 50 or do you like to toil until you reach 70? Visualization allows you when and how much resources and money you need to achieve the dream.

Determine your time horizon. If you want a house 10 years down the road, the saving strategy will be different from saving for a Europe vacation 2 years from now. You might want to invest in a retirement plan where you just put in money and avail the benefits at age 60.

Know thyself . You would know how risk averse or risk tolerant you are. There are investments that produce long term high yield overtime but the volatility is like a roller coaster ride. You may be attracted to the yields, but experience stomach acidity when the market crashes. This type of investment is not for you. You may be more fit to have guaranteed paying plans.

It can be the other way around , you may get so bored with single digit returns. And the moment the market slides down , you are the happiest person because you are buying at a low price. Then go for the equities and market linked type of investments i.e. variable life insurance or mutual fund investments

Allocate resources according to your needs. Financial planners and institutions can advise individuals matching needs, risk tolerance and time horizon. Some would have greater percentage of their money in investments, while others in guaranteed plans like life insurance policies and educational plan. No individual financial plan can answer everyone’s needs.

For the family to enjoy the benefits of a new house, you need to have a contingency fund to source from when illness strikes the bread winner. Or else the healthy members will be surprised to be the payors of the mortgage. Thus create a contingency fund which can be from your own funds or from the funds of companies like the insurance companies.

What you sow is what you reap. You need to do your assignment in knowing what it takes to pursue your dream. There is definitely no free lunch. Discipline and delayed gratification will make the difference in successfully achieving your vision.

Feel free to share your financial planning tips and experiences.

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-1000 in 2 and 1/2 weeks.

The PSE Index closed last August 17, 2007 at 2800 level. And the next morning (August 18, 2007 - Philippine time) , DOW Jones was up by 233.30 by to 13,079.80. The roller coaster ride in the stock market can drive people to be extremely fearful as to the depth of the correction. Clients and colleagues ask me when will the market stop falling and starting moving in an upward trend. Well, I tell them I do not know. The psychological factor is the one pulling the market down. One could read in the newspapers that the country's numbers are generally good and no bad news at all to start breaking investor's confidence.

At first, fund manager's report would say that 3,300 will be the support from 3,500. You can still see people smile and have a good night sleep. After it had breached the 3,100 mark, came the biggest single day loss of 188 points which drove investors to sell as a herd. Reports would say that the PSE@2, 900 level is already in an overly sold mode. And this maybe the bottom.

But by August 17, the PSE index has shed close to 1000 points in two and a half weeks. The mood is sober plus the fact that the storm was in sync with the global sell-off. You could hardly see jubilant investors who think that buying at this down time brings in opportunity. Whew, where is the bottom? I do not know, period. There might still be a bottom out there waiting for us.

I just hope that there will be signs of life. And by then, it is important to think twice before believing and entering the market. As long as I can sleep at night even during market swings, I will go ahead and gradually put money in equity. But if I am having nightmares while there's too much volatility in the market, I will put my buck in the savings account. At the end, I have the freedom to choose my immediate reward: either peace of mind or high returns.