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Which Life Insurance is best for me?

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Jake


That depends on your financial goal and investment preferences.







To interpret this table, here is a good example:

If your main concern is more focues on income protection rather than your investment returns, avail on Term Insurance only.

If your main concern is investment and your investment preference is more aggressive with the understanding of higher potential returns, opt on getting Variable Universal Life.

Those who are thinking of getting Endowment or whole life as a means of investing, you may want to reconsider on getting Variable Universal Life instead. The investment return is very low but higher than what is offered by the bank. Whole Life and Endowment is only for people who are realy UBER conservative.
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Types of Life Insurance

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Jake

There are different types of Life Insurance, but I will only cover those that are commonly offered here in the Philippines.
I.                    Term Insurance
·         Cheapest Life Insurance
·         No Investment Component
·         Remains in force for a specified period or term
·   i.e. Just like car insurance, if nothing happened to your within the year, the cash you paid is as good as trash

II.                  Whole Life Insurance
·         Life insurance that remains in force during the insured’s lifetime provided the premiums are paid
·         Covers upto age 100
·         Investment Component: Cash Values, profit sharing and dividends
·         Cost higher than Term Insurance but cheaper than endowment
A.      Straight Whole Life
·         From the word itself, you have to pay for as long as you can, unless you were taken out of the picture
·         Could self-liquidate by using cash generated by profit sharing or dividends to pay off the remaining premiums. Take note that dividends are not guaranteed. The user may need to continue on paying if the cash value of the policy becomes ZERO.
B.      Limited-pay whole life
·         From the word itself, limited-pay only. Usually between 5 to 15 years
·         More expensive than Straight Whole Life
III.                Endowment
·         Most expensive among Traditional Life Insurance
·         Investment Component: Cash Values, profit sharing and dividends
·         Allows faster accumulation of funds ideal for savings
IV.                Variable Universal Life
·         Characterisitics of whole life and term insurance
·         Could provide lifetime coiverage if sufficients are paid
·         Investment component: Mutual Funds
·         Flexible, at the same time liquid investment
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How to calculate your Life Insurance Coverage?

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Jake

 


If you really love your family, you defintely need to consider this. There are two ways calculate your needed Life Insurance. The ‘Easy Way’ or the ‘Hard Way’
1.       Easy way – Used for Income Continuance.

Ages
Income Factor
<30
15 X Annual Income
31-35
13 X Annual Income
36-40
14 X Annual Income
41-45
10 X Annual Income
46-50
8 X Annual Income
51-55
7 X Annual Income
56-60
5 X Annual Income
>61
4 X Annual Income

This is just a rough estimate for breadwinners to consder in getting life insurance. The income factor is derived from the number of years prior to your retirement, wherein you are no longer generating an active income.

2.       Hard Way – For us to do this easier we will divide this into segments, then add them all up

A.      Income Continuance – To sustain the lifestyle of your dependencies on the event of your loss

a.       Current Monthly Contribution to your family or dependencies – For this example we will use the amount 20,000

b.      Interest Rate – This is the interest rate of the investment instrument used when the Death Benefit has been received by the beneficiaries. Let us assume it is only placed on the bank earning an interest of 2.5% p.a.

Annual Family Expense ÷ Interest Rate

20,000 x 12 ÷.025 = 9.6 M

B.      Funeral Cost – Average funeral cost is around 350K. You don’t believe me? You may refer on this link for  the breakdown: http://funeralinformation.blogspot.com/2011_01_01_archive.html

C.      Estate Tax – This is the tax on the right of the deceased person to transmit his/her estate/assets to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.

Over
But Not Over
The tax shall be
plus
Of the excess over

P 200,00.00
Exempt


P200,000.00
500,000.00
0
5%
P 200,000.00
500,000.00
2,000,000.00
P 15,000.00
8%
500,000.00
2,000,000.00
5,000,000.00
135,000.00
11%
2,000,000.00
5,000,000.00
10,000,000.00
465,000.00
15%
5,000,000.00
10,000,000.00

1,215,000.00
20%
10,000,000.00

i.e. I have total assets amounting to 2.5M.

        Tax = 135,000 + .11 × 500,000 = 190,000

        This means that before the 2.5M peso worth of assets be transferred to my lawful heirs on the event of my loss, they need to pay a total tax of 190,000 first.

        One way of preventing this Estate Tax is to transfer the assets to rightful heirs before the death of the owner. Of course, this is very difficult to predict.

D.      Other Liabities – i.e. Mortgage Redemption, Personal Loans
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Why do you need Life Insurance?

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Jake

 


The need for life insurance can be found from it's meaning, which is a system designed to protect people against financial hardship in the even of a loss.

Life Insurance is a risk-sharing business. For me, it is a blessing. Not everyone is blessed with Life Insurance especially for those who are old or sickly.

But often, this is being neglected by the young and healthy. They kept on providing excuses for not getting an insurance by telling "I'm still young…I'm still healthy…I don't have any dependencies yet", and when they decided to get one, they are being declined either because they are sick or too old already.

As a breadwinner, Life Insurance is needed to protect your family or dependencies from financial hardship on the event of your loss. These financial hardships includes:

  • Funeral Cost
  • Expenses to sustain the lifestyle of your dependencies
  • Estate Taxes
For yourself or for your family's financial security, this could help you prevent a major financial lose in case a family member was "taken out of the picture". After you insure yourself, you should insure your whole family even though you are the breadwinner. Why? I'm not trying to become morbid here, but do you think the lost of a family member only dwells on the emotional burden?

If you have parents who are still alive and healthy, insure them, because the financial burden will definitely pass to you on the event of their loss.

As a business man or company owner, you may insure key person of your company to ensure company's success on the event of his/her loss.

To summarize in just a few words, the key benefit of Life Insurance is "Peace of Mind".
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