Choosing the right life insurance for you (Part 3)

By Randell Tiongson on August 25th, 2012

Question: What are the right criteria for choosing a good life insurance?—Jeremy Jessley Tan (@jeremyjessley) via Twitter


Answer: After discussing how much coverage you should have and talking about the different kinds of life insurance policies in parts 1 & 2 of this column, I will now close this series by discussing how you should choose your plan and provider.

Deciding on a type of plan should be consistent with your objective. If the only purpose of considering life insurance is protection, then a term policy is something you should consider. Further, if you just want to maximize insurance coverage and reduce cost, then a term policy is most prudent. Just make sure that you don’t mind paying premiums that will not be recovered unless a death claim is filed.

If you would like some savings to go with your insurance coverage at the same time, you may opt to get a permanent plan instead of a term policy. Some people would want some recovery of the premiums they are paying when the time comes they feel they don’t need any coverage anymore.

A traditional plan like a whole life insurance will have cash values that will accumulate over the years, typically with a guaranteed cash value and a nonguaranteed portion via dividends. Unfortunately, the returns of traditional insurance policies are very low, comparable to a time deposit rate. Accumulations in traditional plans are also on a long-term basis and will take you many years to break even.

A variable universal plan (or investment link), on the other hand, will provide better accumulation of funds as they are market-driven instruments. The downside of this product is that it does not offer any guarantees beyond death benefits. Still, it is expected to outperform traditional life insurance products over a long period of time, making it more popular nowadays.

Assess your need thoroughly—Would you want to combine your insurance coverage with savings and investment or would you want to do it separately? You can buy term and invest the difference—or you can buy a variable universal life policy that will do that for you.

If you want insurance coverage with guaranteed savings and are willing to accept low returns, then a traditional life policy is for you. If you want better returns but with volatility, then go for a variable universal life. If you just want the plain vanilla insurance, go with a term plan. There is no such thing as a ‘best’ life insurance product—it really depends on your need or affordability.

As to insurance companies, I’d recommend that you consider life insurance companies among the top 10 in the country because they are usually more stable and are highly reputable. I posted a ranking of the top life insurance companies of 2011 here.

The Insurance Commission monitors the operations of all insurance companies and has strict standards, particularly on solvency. Most life insurance companies are well capitalized and it is comforting to know that no life insurance company in the Philippines has ever folded up. It might also be a good idea to ask around about experiences of others with regard to after-sales servicing and claims paying reputation of different insurers.

For me and many others, customer service is a very important criterion—especially since a life insurance coverage is long term in nature.

You may want to get proposals from three life insurance companies of the same product and look at the benefits they offer. I notice premiums of some companies are substantially higher than others so it will be a good idea to be thorough when you are reviewing. Compare benefits and riders, add on those that you need and remove those that you think are unnecessary. When you are considering a variable universal life policy, check out the management fees—some charges are much higher than others.

Finally, I urge you to also be selective in dealing with your insurance advisor. I will go with an advisor who knows his products thoroughly, can answer most of your inquiries, can conduct a good needs analysis and will put your interest first before his sale. Unfortunately, quite a few insurance advisors have issues like misrepresentation or, worse, nonremittance of premiums. It is important that you deal with a professional and it is easy to spot one by observing the way he conducts his business.

Whether you buy from an insurance agent or from a bank (via bancassurance), make sure you get a policy that you need, you can afford, from a company that is reputable and from an advisor that you trust. Tip: If you notice that the advisor is so much in a hurry to close a sale and is more concerned about meeting his sales quota than your welfare, you might want to look for another advisor.

My prayer is that more Filipinos will be like you. More Filipinos have to be covered considering the benefits of life insurance.

This post appeared in the Inquirer.

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Life Insurance and World War II

By Randell Tiongson on July 25th, 2012

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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Choosing the right life insurance for you, part 2

By Randell Tiongson on July 21st, 2012

Question: What are the criteria in choosing a good life insurance?—Jeremy Jessley Tan (@jeremyjessley) via Twitter

Answer: My last column talked about determining first if you need life insurance and how much. I posted a table on life insurance analysis hereAssuming you have decided you needed a life insurance an.d you already have an idea how much coverage you need, the next question is what kind of life insurance should you buy and from whom should you buy it?

Generally speaking, there are two types of life insurance—term insurance and permanent insurance. Investopedia.com defines term insurance as “a type of life insurance policy that provides coverage for a certain period of time, or a specified ‘term.’ If the insured dies during the period specified in the policy and the policy is active—or in force—death benefits will be paid. Term insurance is initially much less expensive compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value. It is the plain vanilla of life insurance; it is what we call pure insurance. Term insurance is recommended for those who want to maximize insurance protection while minimizing cost, as this type of insurance has the cheapest premium. It is interesting to note that less than 20 percent of term insurance policies are still in force when the insured dies and, therefore, never pay a claim. This product tends to be the least expensive insurance, initially. However, either the face amount decreases or the premium increases as the insured gets older. Term insurance provides death benefit protection only, has no cash value and not much versatility.

Permanent life insurance is “an umbrella term for life insurance plans that do not expire (unlike term life insurance) and combine death benefits with a savings component. The savings portion can build cash value—against which the policy owner can borrow funds, or in some instances, can be withdrawn to help meet future goals, such as paying for a child’s college education. The two main types of permanent life insurance are whole and universal life insurance policies, as per Investopedia.com. Whole life insurance is commonly referred to as ‘traditional life insurance.’ It is an insurance policy that matures at age 100 and has level paying premium, which means it does not go up unlike that for term insurance. You may opt to pay a whole life insurance until maturity or opt for shorter paying periods (at a higher premium).

Aside from death benefits, a whole life insurance policy also has cash value that can be withdrawn yearly or left to accumulate and earn interests. A whole life can also be a ‘participating’ plan, which can earn policy dividends. Policy dividends are allocated by an insurance company and dependent on the firm’s claims experience and investment returns. Most traditional life insurance plans will have a guaranteed cash value portion and a nonguaranteed portion (policy dividends).

Variable universal life or unit-linked life insurance differs from traditional universal life insurance because the underlying values can be invested, at the direction of the policy owners, in many sub-accounts—such as equity, fixed income and balanced account options. Policy owners are given the opportunity to direct their cash values based on their risk tolerance, investment objectives and personal asset allocation models. The policy owner assumes the risk in a variable policy, but has the potential for the highest return. Also, he can integrate the policy with his investment philosophy. Variable life insurance is typically recommended for longer-term needs, where cash accumulation, as well as death benefit protection, is a priority.

So which policy should you get and where should you get it from? I will answer that in Part 3 of this article due the limited space in this column. Catch it in two weeks.

Allow me to leave you with these words of wisdom regarding our fiscal responsibility to our loved ones—“But if anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever.” — 1 Timothy 5:8, ESV

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