DESPITE its importance, many people find life insurance complex and daunting, often leading to misconceptions and hesitations about obtaining coverage. However, by shedding light on the key principles, benefits and considerations of life insurance, individuals can explore this critical aspect of personal finance with confidence and clarity, ensuring their financial well-being and that of their loved ones.
Life insurance is an important aspect of personal finance. Despite this, less than 10 percent of Filipinos are insured. I would say part of why Filipinos are not aware of how important insurance is or why they don't take action is because they don't fully understand how life insurance works and how it can benefit them. Here are some misconceptions about life insurance that, at times, prevent an individual from getting his own insurance.
It is expensive. Expensive may be relative, so I'd let you be the judge if these options for life insurance products are indeed expensive in your view. Term insurance is the cheapest form of insurance, and to illustrate how low premiums can be, a P500,000 coverage for a 30-year-old can only cost P3,000-P4,000 a year.
This is just about P300/month, equivalent to two coffee drinks from your favorite coffee shop. A Variable Unit Linked (VUL) product, insurance with an investment component, can cost just P1,200-P2,000 a month, but since it has an investment component, one can possibly earn enough from the investment to recover all the premiums paid. Corporate or group insurance costs even less than term insurance, with some products having a premium of less than P100 per year per person in a group.
It only has death benefits and no living benefits. Traditional life insurance has cash values that can be loaned or redeemed in full once surrendered. Endowment plans also allow one to receive guaranteed cash amounts regularly after maturity, while VUL policies have an investment component that can give non-guaranteed returns between 3 and 15 percent on average annually.
Though life insurance's main purpose still remains to be for the benefit of those who were left behind by the insured, it still has features that would allow the insured to enjoy benefits while still alive.
Coverage is limited to the insured's death. A lot of people think that life insurance companies only cover a person's death, meaning benefits can only be paid out after the insured dies. But there are products that can assist financially in case of accidental dismemberment or disability and even critical illnesses.
For instance, upon diagnosis of cancer, critical illness insurance can give a lump sum payment for the first diagnosis to help with treatment and medications. The amount may not be fully enough to compensate for all medical expenses, but it eases the burden of shouldering costs out of our own pockets and eventually makes us financially handicapped. For both accident and critical illness benefits, you can attach them as riders to your plans or get yearly renewable stand-alone insurance.
If I cannot pay premiums, I have no option but to let the policy lapse. First, one has 30 days from the due date to pay the premiums. Second, assuming the policy owner was unable to pay the premiums within the grace period, and the policy indeed lapses, he can still reinstate the policy as long as he pays all unpaid premiums and possibly interests that go with it. Lastly, if the owner wants to stop paying premiums but would still like to be insured, he can choose the reduced paid-up option, which would allow him to completely stop paying succeeding premiums but still be covered, this time for a smaller face amount. For VUL policies, the owner can choose to go on a premium holiday for a year or two (or even longer) as long as he makes sure that he has enough investments or account values that can pay for the premium charges, if any, and the cost of insurance.
HMO health insurance and life insurance are one and the same. I've asked a number of people if they have life insurance, and many would answer yes because the company provides for them. But if I asked how much they are covered, they told me that checkups are free and there are additional benefits for hospitalization.
These are the benefits of HMO insurance and not life insurance. Both are really good products but serve different purposes. Though there are life insurance products that can cover for hospitalization, they don't cover checkups or annual physical examinations which are provided by HMOs.
Jeremy Jessley Tan is a registered financial planner of RFP Philippines. To learn more about financial planning, attend the 107th RFP program this May 2024. Please email info@rfp.ph or visit rfp.ph for details.
Read The Rest at :
