However, I do not recommend getting life insurance coverages for children. In the past, I must admit that I made a mistake recommending life insurance for children and even bought some for mine as well. In retrospect, I regret doing so. Investopedia states best why you should not get life insurance for children:

“Life insurance is designed to provide a safety net for your heirs/dependents. Because children don’t have heirs to worry about and, statistically speaking, most kids will grow up safe and healthy, most parents should not purchase life insurance for their kids…”

Instead of paying premiums for coverage, it is better to use those funds and invest in mutual funds, uitf, deposit accounts and other more viable investment instruments and invest it on their behalf. Years from now, you will realize that said investments will perform so much better than the life insurance policy of your kids. Unless you child is a child star and he or she provides for you, reconsider getting a policy for your child. Instead, assess your own insurance needs — chances are you will need to add more insurance on your own life or that of your spouse.

I think a lot of insurance agents would stop reading my blogs after this post… but, I encourage you to periodically assess your need for insurance and act on it — just don’t believe those who will tell you to get for your kids too because it’s really not a good idea.

The primary goal of a person getting insurance coverage is to assure himself that he will not shoulder the loss alone.  He may gamble, take his chance that he may be able to steer his property away from a loss and its devastating effect.  But putting a minimum amount, and considering that such amount is the only sum he is bound to loss in case a loss actually occurs is the logic behind getting protection for your property.  However, it is unfortunate that most Filipinos remain clung to his fatalistic philosophy of “Bahala na.”  When the loss happens, it is already too late.

Risk is an everyday reality.  This is the reason why people make calculations instinctively to avoid risk.  They forget that their own negligence (lack of foresight, lack of skill to prevent loss) is the paramount reason why property insurance is there in the first place.

The Philippines still continues to have the lowest percentage of insured individuals. This is not good because in the risk management arena, insurance remains the best.

The country’s insurance industry is older than the republic itself, yet we continue to lag behind many countries when it comes to insurance.

A high percentage of progressive countries’ populations are insured. Is it about affordability? To a great degree it probably is, but to a great degree it isn’t, either. How many Filipinos have a mobile…

Read the full article at The POC

http://thepoc.net/thepoc-features/mukhang-pera/mukhang-pera-opinions/5815-the-need-to-protect.html

Aside from its primary function, property and casualty insurance also has other functions.

It stimulates business enterprise—Insurance has made possible and helps maintain the present-day large-scale commercial and industrial organizations. It enables them to use their capital in the development of their business and obtain financial security against risks, instead of freezing business capital just to guard against various contingencies. Because of reduced risks also, capitalists are able to venture into other projects.

It stimulates business efficiency—Since businesses can worry less about losses, they can concentrate more on the prosecution of their business.

Promotes loss prevention—Insurers allow taking risks from well-maintained and quality machineries, equipment or properties.

Investment of funds—Insurers accumulate large funds and these are invested in the economy. Moreover, the funds of business enterprises do not remain static but are used productively, resulting in lesser premiums. Moreover, the process produced by business is reduced, benefiting the public. Although cost of insurance is integrated in the prices of commodities, the amount is significantly lesser than the amount without insurance.

Basis of credit—Credit extension is the most important phase of modern business and is contributed to by virtually all forms of insurance. Thus, in the case of a mortgage upon a real estate, no mortgagee is willing to lend money unless he knows that the value of the property is protected from destruction.

Surely, the foundation and purpose of property and casualty insurance is really much more complex that what was explained here. One also needs to understand about risks and hazards to be able to have a better appreciation of insurance.

Risk is the chance of loss. If a loss is absolutely certain to happen, no risk is involved. Peril is the contingent or unknown event which may cause a loss. The peril is that which is insured against because without such peril, the risk is absent. Examples of perils are fire, flood, accident, theft, illness, etc. The insurance company can choose what perils it will be willing to except the insured from. This is what is also termed as insurable risk. But risks, to be insurable, must meet certain requirements:

Importance—The loss to be insured against should be grave enough to support a contract of insurance. Not all losses would have to be insured. The object must have some economic value, so that losing it would put the insured in some degree of pecuniary disadvantage.

Calculability—The loss must be possible to estimate as to its probability. This is particularly important in order to determine the amount of premium and the amount to cover, so as to protect the insurance industry.

Definiteness of loss—The losses should be fairly definite as to cause, time and place.

No catastrophic loss—This is against the law of large numbers. When large numbers of people are subject to the same kind of losses at the same time, insurance becomes a risk-accepting business rather than a risk-distributing device. The losses of the few are no longer borne by the many who did not suffer a loss. Only small occasional losses are insurable.

Accidental in nature—Insurance is intended to cover accidental or unexpected losses. If the loss is not accidental, sudden or unexpected, there is definitely no risk. Payment made to a party whose loss is expected is contrary to public policy and morals.

The perils that conform to these requirements are proper for supporting an insurance contract.

Hazard, on the other hand, is the condition or factor, tangible or intangible, which may create or increase the risk from a given peril. Hazards are what create a peril, which, in turn, creates a risk. In the insurance environment, hazards are:

Physical hazards—those relating to location, structure, occupancy, exposure to the surroundings and other similar things like inherent vices that make the thing very susceptible to loss.

Moral hazards—those relating to the mental attitude of the person.

Morale hazard—pertains to the attitude or character of a person.

Whew, this blog has turned out to be a mini-lecture on the fundamentals of insurance. Since we pay good money to get such insurance, isn’t it about time we start understanding what we have been paying for all these years? I think so.

When you compare life insurance and property and casualty insurance, you will notice that the only thing similar with them is the term “insurance.” Let’s try to demystify property and casualty insurance.

So what is property and casualty insurance? Property and casualty insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The definition is clear about how property insurance operates. For the insured, it means that the agreement is merely to help him recover what was actually lost due to the unknown or contingent event. A contract of indemnity is therefore exclusive to property insurance.

Why is there a need for this type of insurance? Well, for starters, it really is a risk-distributing device. A person puts money called premium to a common fund and distributes his risk to the group. There is no way for a person to know in advance whether he will receive compensation more than he has contributed or that he will be merely paying for the loss of others.

The primary goal of a person getting insurance coverage is to assure himself that he will not shoulder the loss alone. He may gamble, take his chance that he may be able to steer his property away from a loss and its devastating effect. But putting a minimum amount, and considering that such amount is the only sum he is bound to lose in case a loss actually occurs, is the logic behind getting protection for your property. However, it is unfortunate that most Filipinos still cling to his fatalistic philosophy of bahala na. When the loss happens, it is already too late.

Risk is an everyday reality. This is the reason people make calculations instinctively to avoid risk. They forget that their own negligence (lack of foresight, lack of skill to prevent loss) is the paramount reason why property insurance is there in the first place.

… to be continued.

For some reason, and despite the obvious importance of taxes in the daily operation of the state, it has exempted life-insurance proceeds from the ambit of tax laws, save for some exceptions, of course.

Our Tax Code recognizes the role and importance of insurance to the family of the person insured. It also exempts insurance proceeds from garnishment, attachment and execution of judgment-creditors. For those who have accumulated a hefty estate, life insurance can do wonders for them.

Most, if not all, estates left and brought into the inventory of the Bureau of Internal Revenue (BIR) are comprised of illiquid assets. If the typical Filipino would put it, the heirs are already in their advanced ages before they step into the succession, and the grateful recipients are not individually willing to shell out money for the settlement of estate tax and money claims of creditors. Others do not simply have the means.

In one case, the Supreme Court sustained the BIR when it assessed and collected the entire tax due from one of the heirs among several even if it means that all he had inherited would be dissipated in the process.

This need not happen unless we forget that life-insurance proceeds can be used to pay the taxes and claims and, in the process, keep the assets intact. A person can also use insurance proceeds to provide for his illegitimate descendant who may be left out of any shares in his estate. An illegitimate child gets the equivalent of half of the share of a legitimate child, and that share will be taken from the free portion, if any.

In other words, life insurance can promote “equitable” sharing. Most important, for a person with modest earnings, life insurance can provide an estate as big as his millionaire neighbor who did not believe in his insurance, the latter probably has very little or none at all.

Life insurance is just one of the tools for your estate plan. To emphasize its importance, Black’s Law defined estate planning as “the preparation for the distribution and management of a person’s estate at death through the use of wills, trusts, INSURANCE POLICIES and other arrangements, especially to reduce estate-tax liabilities.”

Do not just plan on the aspect of accumulation, plan for its conservation and distribution, for in the latter is where your absence will be.

Life insurance is not the only way to go about estate planning, it is just a tool among many. However, life insurance is a very powerful and cost-effective tool.

“A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.” – Proverbs 13:22, NIV

Christianity has modernized our mystic concept and infused it into our laws. “Birth determines [legal] personality. Death extinguishes it.” You, as the owner of the estate, may be about to leave this mundane world, but your legacy may be passed on to your heirs and for generations to come, and that’s what makes you immortal.

People have been looking at ways on how to distribute wealth to their heirs—hence, estate planning. This is a concept that is looked at as a design, a scheme, to help a person avoid the impact of heavy taxes on a person’s “privilege” of accumulating wealth and passing it on to his heirs.

Yes, the Tax Code will tell you that what you have is a mere privilege. Settling taxes first is the operative act before the family can acquire the properties left to them.

Is inheriting automatic? How automatic is “automatic”? my beloved professor so loves to ask.

Technically so, inheriting your parent’s or grandparent’s properties is not simply “automatic” even when the law says “by operation of law.”

Estate planning is much more than simply avoiding taxes. Tax is not always the main consideration when one looks at estate planning.  This writer believes that estate planning is all about supervision, conservation and distribution. Tax avoidance is just an incident of what planning brings to him.

There are many tools for planning one’s estate in the aspect of conservation. Let us, however, focus on the most simple yet effective of them all—that is, life insurance.

Taxes are the lifeblood of the state. Its collection should not be in any way delayed. It cannot be overemphasized how important taxes are. The Supreme Court says in a myriad of cases that if there is doubt on whether or not to grant tax exemption, the doubt shall be resolved against the taxpayer.  Avoiding taxes and grant of exemptions are frowned upon. Nonpayment of taxes even merits a criminal offense. The Tax Code also assesses the taxpayer, “whichever is higher.” … (to be continued)

Catch Part 3…

For those who do some form of estate planning, we notice that many of them forget one estate-planning tool: life insurance.

I have asked my good friend, a legal expert on financial services, lawyer Carlo Carino, to help me write this article. Carlo is also a recent graduate of the Registered Financial Planner’s program and is one of the featured experts at www.income-tacts.com.

Let’s try to have a more powerful (and creative) introduction for today’s article (wink).

Thousands of years ago, and up to the relative present, man has always thirsted for immortality. This has been his greatest quest. The Egyptian pharaoh believed he can achieve it and, thus, prepared for his next life by bringing his riches, women and faithful servants with him into the grave. Hundreds are taken along with him, his riches and favorite earthly possessions delivered in his grandiose and mythical grave.

Chinese emperors, likewise, held this devotion.  The fountain of youth, however, was nowhere to be found, albeit Madonna, with her youthful looks and stunning dance repertoire, may have found it.

Now, immortality is achieved figuratively through halls of fame or burning a page in the annals of history. Some try to achieve immortality by writing songs, as Barry Manilow puts it. Some write poetry, poems, literature.

To thwart history and immortality, Xerxes of Persia threatened to erase the Spartan king Leonidas by burning every Spartan literature, cutting the tongue of every Greek and sentencing to death any person who spoke his name. That probably never happened because I just saw the movie on HBO.

I also remember a movie starred by Peter O’toole entitled The Wings of Fame. The movie is set in a limbo-like place where those who were famous remain in this limbo until the mortals forget their name. Once forgotten, he or she disappears, never to be seen again.

Fortunately, our law has brought forth a similar solution for man’s quest for immortality: succession.

Our law on succession helps a man achieve immortality through the passage of wealth from one generation to another. A person’s wealth is just like a hero in a movie. It is the same character, but the actors who portray it have been several…

Catch part 2

Insurance is still the best tool for risk management by virtue of a risk transfer mechanism. For those who are wondering if their cars and properties are covered by insurances… yes, if they have the proper coverage such as Flood and AOG (Acts of God).

Loss of life and property is crippling, financially and insurance can really help — despite not being popular among us Pinoys. Maybe it’s time we look at insurance in a new view.

Insurance companies that do not ‘re-insure’ will be in trouble, that’s for sure!

Check out my old blogs about Motor Car Insurance

Part 1

Part 2

We must always be prepared… financially, and more importantly, spiritually. My 2 cents.

“For in the days before the flood, people were eating and drinking, marrying and giving in marriage, up to the day Noah entered the ark; and they knew nothing about what would happen until the flood came and took them all away.”

(Matthew 24:38-39, NIV)

3) Acts of God (AOG) – Hmm, I really think insurers should start changing this terminology! Oh well, AOG is a protection against perils from the natural forces like storms, flooding, lightning, etc.  For example, there was a strong typhoon and a huge tree branch hit your windshield and shatters it… if your motorcar insurance has no AOG coverage, you can’t make any claim.  Loss where the proximate cause is a natural occurrence is usually not the kind of loss insured against.  Hence, if you are not covered against these kinds of peril (excepted perils), any losses due to force of nature will not be a compensable loss.

4) Passenger Personal Accident Insurance (Auto PA) – works like your regular PA but auto PA are given to unnamed passengers of the insured vehicle. Usually, auto PA gives compensation for loss of life, dismemberments and medical reimbursements due to accidents while riding the insured vehicle.
Now, do we need all of these?  Honestly, I think we do.  Accident is an occurrence that happens not in the usual course of things.  The chance of not getting in an accident is as likely as meeting one.  So why take the risk?  When you reduce your coverage, you expose yourself more to risk…and come to think of it, you do that just to save for a measly amount.  Personally, I would rather lose a guaranteed amount stated in the policy, certainly a small price to pay compared to paying for something you are exposing yourself to in case of figuring in a freak accident.

P100,000 is too small an amount for third partly liability… hospitalization cost escalates much more than P100,000.  What if the the victim will have to go through a delicate surgery? P100,000 will surely not suffice. Much of the properties that your vehicle can damage would be more than P100,000 — that’s for sure.
As for Acts of God coverage, the Philippines has its share of natural calamities.  It’s actually a tradition of Ms Philippines to meet natural typhoons, floods.  These are so common to us — don’t you think you should be covered against them as well? The premium costs for said coverages aren’t too much.  In fact, I often think it’s quite inexpensive for the benefits I could get and the protection it gives me. Unfortunately, many non-life agents don’t go through the notions of educating clients about the benefits of a comprehensive coverage – the product features probably unique to their respective companies.  This, of course, may be a symbiotic fault.  Clients chop premium amounts.  When you do that, you sacrifice your protection…to realize when it is already too late.

Do you remember Milenyo? I was driving home from Makati during Milenyo when a huge flying tree branch missed my windshield by a few inches!  Whether it hit me or not (thank God it didn’t) I am assured and protected against damage to my car, worst my person.

Tip to everyone… when shopping for motor car coverages, check out all the sections and the coverages before making comparisons.. a policy from Insurance Company A might be cheaper than Insurance Company B because they reduced VTPL, deleted AOG and Auto PA, or worse, reduced Fair Market Value (FMV) of the vehicle (it’s the basis of OD/Theft Coverage). Make sure that you compare them fairly and squarely before deciding where to get your insurance.  Further, make sure you are getting coverage from a reputable insurer.  Premium costs is not the make or break of getting a coverage.  Some insurance companies may require a more expensive premium but I’d rather pay a few extra pesos and be assured that when the time comes, my insurer is there to pay. There are just too many unscrupulous non-life insurers in the Philippines.  You should be more discerning with your choices.

Hmmmm… I’m sure motorcar insurances in other countries may operate differently. In the U.S. you pay a higher premium if you have a teenage kid, your premium increases when you have claims even if you moved to another insurer and all that but hey, ‘iba ang Pinas eh!’ There are many things that needs improvement here with regard to motor car insurances..for starters, it’s a bit expensive.  Why??  Claims experience in the Philippines is pretty high.  Worse, we’ve been hit by a lot of deceitful claims by syndicates (involving car shops, adjusters, and other parties), high carnapping rates, etc.  All of these affect premiums.  One way to reduce premiums is to charge people with bad claims experiences higher premiums.  While some insurers do that, clients just move to other insurers where they have no record and get their coverage there at the same premium rate. This practice is so rampant in the local industry and insurers have no recourse but to pass this cost to the consumers by way of higher premiums.. pretty much like illegal tapings at meralco.  This could be avoided if local insurers would cooperate with each other and share common databases. I was told that there was a move to do this, but, somewhere, somehow, the project was shelved or put on hiatus  Banks share credit history (CIBI), Life Insurance companies share medical results (Medical Impairment Bureau).. why not Non-Life Insurers? The top 10 Non-Life Insurers should and can start this.  Everyone else will follow.  Or probably, another law will have to be enacted!

Hope this helps the readers. It’s time to understand all these things that we spend our hard earned money on, right?