Life Insurance and World War II

Financial services companies, especially life insurance companies are not known for good advertising or branding campaigns. Time was, all you see is their logo or some ad that talks about their services. Worse, many of these companies advertisements are usually a newspaper spread on who their top agents for the year or a recently concluded contest — yeah, that’s going to sell more insurance — not! From a purely marketing and advertising perspective, life insurance is not your bench-mark when it comes to hi-impact promotions.

When I saw this short film, I take it back. This is a very good way to talk about a brand. Good one Sun Life, I hope this endeavor will make Pinoys appreciate life insurance better. I think the ante is up — looks like we will see better campaigns from other insurers too.. and hopefully, banks too!

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Don’t buy life insurance for kids

For those who know me and read my stuff, they would know that I am an advocate of life insurance, among other financial instruments. Life insurance is something Filipinos lack sorely and for those who have some life insurance, chances are it is not enough. I stand with my belief that it is a financial instrument that allows you to have peace of mind and a great risk management tool when it comes to the uncertainties in life. In fact, life insurance is the quickest, fastest and most cost-effective mechanism for financial protection in case of untimely demise or serious physical breakdown. It is a travesty that the percentage of insured Filipinos are so unbelievably low and getting proper insurance protection is not in the priorities of many of us. If I had my way, I would want every Filipino parent to have adequate insurance coverage.

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.

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The need to protect

In the arena of financial services, the need to protect is not most people’s top priority. Insurance continues to be a service that is misunderstood – we also distrust it, avoid it, delay it and we are generally apathetic towards it.

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

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Pre-need problems, part 2

My last blog dwelt on the state of the preneed industry and probable reasons some companies folded up and why things are not looking good for them. Just to summarize, I wrote that their problems stemmed from wrong design (actuary), mismanagement and regulation.

For this blog, I will be writing about what to do with your preneed plan.

First, if you are considering purchasing one, it would be very prudent that you thoroughly scrutinize the product you are buying and the provider of that product. Not all preneed companies are shaky; there are a few that remain strong, so it would be unfair to make a general statement. However, many preneed companies are in limbo, and if you decide to get any plans from them, you have to accept the risks that come with it. Consider why you are buying a preneed plan first; why do you want to invest on it? Consider alternatives, as well; if it’s for savings, try other programs like time deposits, treasury bills and, if you have a higher tolerance for risk, try unit investment trust funds or mutual funds. If it’s for protection purposes, get life insurance. You can actually make your own preneed product by combining different programs out there. In fact, I believe you can even come up with a program that is less risky and will yield you a higher growth. If you are thinking of buying preneed at this time, think hard about it.

For those who already have an existing preneed product, what should you do?

If you already have a fully paid plan, there are some options for you. The first is for you to wait for maturity…it really is up to you if you want to take the risk of waiting, or you feel comfortable with your provider. If your maturity is very near, say, next year, you may want to consider holding your plan until maturity. Your second option is to sell your plan. Prior to the preneed fiasco, there was a flourishing secondary market for fully paid preneed plans. You may want to try selling your preneed price at a discount and see if there are any takers. Be prepared to price your plan at a low price, as the appetite for preneed plans today are not too good. Last, you may opt to call your preneed provider and surrender your plan. They usually have a buy-back facility that offers you surrender values. Unfortunately, preneed companies will always give you less than what you have paid for the said plans, so be prepared to take some heavy losses.

If you are still paying for your pre-need plan, you are limited to just three options. First, you may wish to continue paying for your plan. If you are confident your preneed provider is stable and you trust them, you can always brush aside the so-called preneed scare. Second, and depending on how long you have been paying, you may opt to ask your preneed provider for surrender value of your product. Preneed plans have a mechanism in them for surrender value—the longer you have been paying, the higher the percentage of surrender value (from what you have paid). If you are just on your first year, you probably can’t get any money back and charge your investment on “experience.” Last, you may want to cease from paying your preneed plan, and cut losses. If you are very uncomfortable with this whole preneed issue, don’t lose sleep over it.

What I wrote here are the options for those who have preneed or are thinking of getting one. Like any other investment, preneed, despite its hype, is not spared from the rudiments of investment realities. What can be a great investment today can be a horrible undertaking tomorrow—that’s just the way the cookie crumbles! We can always blame providers and the regulators, but that will not bring your losses back. So what’s the solution? I believe the only real solutions will be financial education. Sour investments will always be part of our life, and we must deal with them. In the end, not all our endeavors will yield a negative result, some will be positive. If you have more positive investments than negative ones, then you come out of it okay.

Filipinos must familiarize themselves with financial literacy. We must be comfortable with ideas like asset allocation, diversification, cost averaging, risk-return relationships, etc. Financial information is everywhere, but seeking financial wisdom is really up to you. Dedicate yourself to learning and understanding. You can take a course like the Registered Financial Planner program (www.rfp-philippines.com), join forums like www.income-tacts.com, read blogs, buy books and talk to other people.

Seek knowledge and, as you seek it, you will eventually build wisdom. “Do not forsake wisdom, and she will protect you; love her, and she will watch over you” (Proverbs 4:6).

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What is Non-Life Insurance, part 2

…con’t.

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.

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What is non-life insurance? Part 1

MANY of us have some form of property and casualty insurance, or more commonly referred to as nonlife insurance. We probably have motor-car insurance, fire insurance or personal-accident insurance. However, I dare say that so many of us who do have some form of coverage are not really aware what this form of insurance is all about.

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.


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Estate Planning and Life Insurance, part 1

Many Filipinos are unaware of estate planning. Many would have vague ideas of what estate planning is, and to those who do, they would automatically associate estate planning with inheritance taxes.

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

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Ondoy and insurance

Insurance has been something people felt they do not need. The Philippines is one country that is severely under-insured in both Life and Non-Life (Property & Casualty).

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)

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