Life insurance: Everything every Pinoy must know in insuring life

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Life insurance is a way for your family to receive money on your untimely death.

It sounds morbid, and that’s why most of us Pinoys have grown allergic to talks about death and life insurance products in general.

Culturally, we stay away from or avoid bringing up the topic of death or dying in conversations because doing so would somehow, in some magical way, tempt Fate to deal with us sooner. That the very act of thinking or talking about it or making arrangements for our own passing would make it more likely for us to die sooner.

This has led to the sad situation where we buy insurance for assets such as our houses, vehicles, and properties but not for our own life, actually our own biggest asset.

Life insurance as your last act of selflessness

But really, life insurance is actually not about you. It’s about showing people that you love, and who love you back, how much you care for them after you’re gone.

It is, quite honestly, your last act of selflessness.

Life insurance can actually give you and your loved ones peace of mind because it can cover the following:

Pension for your spouse. Your spouse is the one person that will be hurt the most and will suffer financial hardship when you are gone. An insurance leaves behind an amount of money that can help him or her go on living until such time he or she can recover financially.

Education for your kids. Your kids will be at the mercy of family or strangers after you pass away. An insurance ensures that their education will continue despite your absence.

Family. If you are the breadwinner and you have dependents such as spouse, children, parents and relatives, your passing can put them in dire financial situation. Life insurance can provide them cushion so they can live reasonably until such time they can recover money-wise.

Debt payments. What you can receive from an insurance company can also be used to pay your debts.

End-of-life healthcare cost. We don’t really know the manner in which we pass on from this world. However, there’s a high chance that we’ll rack up hospital bills, medical expenses, and other related healthcare costs towards the end of our life particularly when our family will bring us to a medical facility in the hope of reviving us back.

Funeral costs. There are companies now that offer pre-need plans for funeral because, as it turns out, it can be quiet expensive ranging from about P7,000 to millions. In case you still don’t have one, your life insurance can cover for any funeral costs so your family would have less worries.

Estate tax. Estate tax is what you will give to the government before ownership of your assets can be transferred to someone else. And it can be surprisingly expensive to the point that some families, who are unprepared, would rather sell off the assets just to pay tax. Life insurance can potentially cover whatever is due to the government so your loved ones don’t have to make difficult decisions.

Peace of mind. It lowers the risk of bankruptcy or selling your assets in order for your family to get hold of enough money to pay off all immediate and future needs after your death. It prevents them from making necessary but difficult — even unwise — decisions in time of need, grief, and loss.

Key elements in life insurance product

Life insurance products in the Philippines are covered by The Insurance Act. The Insurance Commission is the government agency that makes sure all these products in the country are fair and conform to our laws.

There are many types of life insurance products out there, but all of them have the following key elements:

  • Insurer is the insurance company in the Philippines that offers life insurance products.
  • Insured is you, the person whose life the insurance covers.
  • Policy is simply the contract between you and the insurer. It contains everything that concerns the product.
  • Policyholder is the person who owns the policy.
  • Beneficiaries are the people who will receive the money after you’ve passed on.
  • Sum insured is the amount of money that the insurer promises to give to your beneficiaries.
  • Premium is the amount of money you pay to the insurer so that your policy is enforced.
  • Period of coverage describes how long the policy is in effect.

Insurer

The insurer is the insurance company. It writes the policy, receives the premium, keeps it enforced as long as the premium is paid, and pays the sum insured to the beneficiaries when conditions of release are met.

The Insurance Commission keeps a list of all duly registered life insurance companies.

Insured

The insured is the person whose life is covered by insurance. Meaning, when the inevitable happens and all requirements of the policy are fulfilled, the insurer would then go ahead and pay your beneficiaries.

It’s not true that anyone can be insured. People of certain age (either too young or too old), profession, state of health, and other factors who may be denied from being insured.

Policy

The policy is simply the contract between you and the insurer.

It lists down all the things that concern your coverage such as your and insurer’s duties, the insured amount, payment of premium, steps in making a claim, and other important details.

Policyholder

The policyholder is the person who owns the policy. Unlike the insured, the policyholder must be at least 18 years old.

If you have insured your life, then you are both the policyholder and insured. However, there are also cases where the policyholder is not the same as the insured such as when a parent buys an insurance cover for a child or employers for their workers.

Beneficiaries

Beneficiaries are the people who will receive the money from the insurer. While generally anyone can be your beneficiary, the most common are your spouse, children, family members, descendants, heirs, guardians, employers and business partners.

You can also name companies, such as banks and lenders, and charities as your beneficiary. However, there are people who are not allowed by the law to receive insurance proceeds.

Sum insured

The sum insured is the amount of money that beneficiaries could receive when the insured passes away.

There are insurance covers, such as a term policy, where the amount of the sum insured stays the same throughout the length of the contract. On the other hand, a policy with investment can possibly have higher sum insured than what is originally written, depending on the returns of the investments.

But how much insurance do you need? You can talk to your advisor on the level of cover that you require.

Premium

Premium is the amount of money that you, as the policyholder, pay to the insurance company in exchange to be insured and for the policy to remain in effect.

Many providers offer flexible payment terms.

You can pay annually, semi-annually, quarterly, or monthly. Making your payment is also made convenient. Depending on the insurer, you can pay through the banks and payment centers. You can even have your premiums paid automatically straight from your bank account.

There are many factors that affect the amount of premium that you will end up paying, including riders, profession, or even place where you live.

Period of coverage

The period of coverage describes the length of time that your policy starts and ends.

There are two basic types of coverage:

  • Term insurance
  • Permanent insurance

A term insurance will give you cover for a limited period of time, typically one year. After the year ends, you will need to renew the policy. Because it has a shorter period of coverage, it costs less than permanent insurance but, generally, it can’t be renewed when you reach the age of 70.

A permanent life insurance, meanwhile, covers you for your entire lifespan, typically until you are 100 years old. Because of its longer cover, it costs more than the term insurance with the benefit of being insured for your entire lifetime.

What is the process of opening a life insurance policy?

Insurers do not directly sell products to you. Instead, they hire insurance agents or financial advisors. These are people who are licensed by the Insurance Commission and then authorized by insurers to reach out to you to discuss your insurance needs.

Here are the steps in opening a life insurance policy in the Philippines:

Talk to a financial advisor. Look for someone who is licensed with Insurance Commission and a good-standing member of a reputable insurance company. Check his or her social media accounts or website so you can gauge his or her competence. You can also attend a financial seminar so you can meet an advisor you can trust.

Needs analysis. The talk is a chance for you to describe your current financial situation and your priorities. You can be familiar with the products that can address your needs.

Application. This is the part where you have determined the right life insurance product. Usually, insurers require identification cards and payment of the first premium.

Underwriting. Underwriting is the step where the insurer checks your fitness to be insured. There might be additional requirements such as a medical examination, documents from physicians if you have pre-existing health conditions, and others.

Policy issuance. When all goes well, the policy can be issued. You should receive a written contract delivered to your address.

Life insurance riders

Riders are add-ons to your life insurance policy. They are separate contracts, called supplementary contracts, that provide additional benefits.

The following are common riders available in the Philippine insurance market:

  • Term rider can be added to either a term or permanent life insurance policy to increase your sum insured. It has a limited period of coverage.
  • Accident rider gives additional benefits when you suffer injuries or die resulting from an accident or major burns.
  • Critical conditions rider pays you or your beneficiaries an amount of money when you get sick of major diseases.
  • Terminal illness rider can sometimes already be included in critical conditions rider. The difference is it pays a sum when you are stricken with specific health issues that doctors confirm your chances of survival is small.
  • Hospitalization/income protection rider provides daily cash when you’re admitted in a hospital.
  • Waiver of premium rider takes effect when you are permanently disabled, unable to earn an income, and unable to complete the required premium payment. Your policy will stay in effect as though you are still paying the premium.