You may think that life insurance in the Philippines is too complicated and too difficult to understand.
Well, it’s NOT.
In fact, you don’t need the fancy financial jargon that some professionals often use to describe it.
What you need to know, instead, are the basic principles of why life insurance is an important financial tool to meet a number of your future planning needs – for both yourself and your loved ones.
So, this guide will make it easier for you to understand how life insurance works so you can get the right type of protection for your specific planning needs.
Let’s get started.
Table of Contents
What is life insurance?
Life insurance is a tool designed to protect you and your family from any financial hardships.
It aims to replace any income loss resulting from unforeseen events in life such as sickness, disability, or death.
How does it work?
Strictly speaking, a life insurance policy provides a tax-free money to your family when you die. This payment is often referred to as death benefit.
You buy life insurance to financially protect the people who are dependent on your income – like your spouse, children, parents, siblings, or even charities. The people you nominate to receive your death benefit are called beneficiaries.
The life of a person written on an insurance policy is called the insured. The owner makes the payments, known as premiums, to the insurance company for the policy.
In return, the insurance company agrees to pay the death benefit to the beneficiary if the insured dies within the agreed term.
Who should have it and why?
As a financial advisor, I’ve come across people who think they don’t need life insurance and I don’t judge them.
But, if you belong to the following groups, you may want to consider getting one.
-People with kids
-Married couples or soon-to-be-married couples
-Single people who support their siblings to school, aging parents, or you have debts you don’t want to be passed on to relatives
-Someone who has been promoted and may now have higher income and greater financial obligations
-maintain their standard of living
-pay off your funeral or other final expenses
-pay off mortgage, loans or any other remaining debts
-establish an educational fund for children
-create a business to replace your lost income
How much life insurance do you need?
Everyone is different, but a general rule of thumb is to purchase enough life insurance to cover seven to ten times your current annual salary.
This calculation is pretty general, though. So, if you need to find an accurate computation for your specific needs, talk to your financial advisor.
What are life insurance riders?
When you go to fastfood chains like McDonalds or Jollibee, the cashier lady often asks you if you want an extra fries or sundae to your regular meal as an add-on.
The same concept applies to your life insurance.
You can opt to receive additional benefits to maximize your coverage for a minimal fee. These additional benefits are called riders.
There are so many insurance riders available. And they vary by insurance company and policy, as do the rules for how they work.
However, as a financial advisor, there are only three riders (or variations thereof) that I recommend you should get on top of a life cover:
What are the different types of life insurance?
Generally, most life insurance in the Philippines fall in these three categories
A type of insurance that provides PROTECTION only for a specified period.
- one of the most affordable forms of life insurance
- renewable every 3-5 years
- specific riders can be attached
- can be converted to other types of insurance that offer cash value while living
- provides “temporary” protection only
- no savings component (no cash value, dividend, or investment returns)
- premium increases as you renew or convert the plan (at attained age)
A type of insurance that pays the death benefit during the span of your life or up to age 100.
- provides protection throughout your lifetime
- usually payable for 10-20 years
- offers level premium (you pay the same premium throughout the term regardless of attained age)
- has savings component (c/o cash value and dividends)
- a bit expensive for someone who is just starting out with their financial goals
A permanent life insurance policy that offers PROTECTION while offering a build-up of savings by investing a portion of your premium in the money and stock markets.
- Often called as investment-linked insurance.
- flexible premiums
- potential for bigger returns to save up for a child’s college fund, retirement fund, or other life milestones
- specific riders can be attached
- can access your fund value in case of financial need
- most popular life insurance plan
- investment returns are not guaranteed
- investment component is not suitable for people with short-term goals
- typically cost 3-4 times the rate of a term life insurance
How much do you pay for a life insurance?
The cost of an insurance policy largely depends on your age, health, and smoking habits. So, check with your financial advisor how much coverage you need for your specific situation.
What are the best life insurance companies in the Philippines?
With so many life insurance providers in the country, it’s best practice to refer to the yearly performance report released by the Insurance Commission.
It’s the government agency that monitors and regulates life insurance companies in the Philippines.
How do you apply for life insurance?
Talk to a financial advisor today to help you review your life and financial situation and he or she can offer the appropriate coverage to you.
Understanding how life insurance works help you make an informed and confident decision in choosing the right protection for you and your loved ones.
In fact, there are so many available options that fit your needs and budget – all you need to do is just to start now.