Preparing your family for the worst case scenario

Aneth Ng-Lim

Posted at Oct 26 2020 08:51 AM

MANILA - Fresh out of college, I was 20 and felt invincible. I viewed the world to be my oyster, and a gift waiting to be unwrapped. Less than a year after I graduated, a fatal accident took away my father, including my dreams of returning to university and taking up a law degree.

Sorting through his finances while my mother was struggling with grief, I was dismayed to discover he only had one insurance policy, and for a coverage so small it would not be enough to provide for my mother who has been a housewife for two decades.

Our story is not unique, as at least 1 in every 2 Filipino has no insurance. Of the other half that does, about 80 percent of them are underinsured. 

A financial planner I interviewed in the past shared that because most Filipinos do not like to think of getting into accidents or passing away, they also choose not to plan for them. That’s their first big mistake. The second is not buying insurance. 

With the continuing global health threat of COVID-19, this trend could be changing. Oxford Business Group reported that in a survey of 300 Filipino insurance customers earlier this year, 77 percent of respondents said they intended to purchase additional insurance within the next 18 months. 

This dramatic rise in insurance interest could be because the survey was carried out by insurance company Manulife in May 2020, back when Metro Manila had been under enhanced community quarantine for 45 days and so were many urban centers around the country.

Shopping for insurance is not easy, and I suggest you don’t buy from the first insurance agent you meet. Before you even talk to any insurance salesperson, here are three things you need to do:

 
#1 Compute how much insurance you need.

A general rule of thumb is to buy enough life insurance to cover 10 times your annual income. But with inflation and the volatility in financial markets, financial advisers are now saying you will need as much as 20 times, even as high as 25 times.

This will be expensive, so don’t worry about paying for it all now. Plan to reach your goal in 3 to 5, even 10 years. But start today, especially if you have zero personal insurance.

If you are working and have employer insurance, that’s nice but consider what happens if you leave that job or was let go. That insurance ends with your employment – so it is always better to have your own.

To help you with your Math, try to speak with a financial planner that can offer you objective advice, meaning not someone from an insurance company selling you their product. I am not saying the insurance agent will not be honest with you; but their advice will most likely be skewed towards what they are offering.
 
#2 Take a hard look at your expenses.

One financial expert takes a different view when it comes to computing how much insurance you need. Instead of looking at your income, he says take a look at how much you are spending.

Melvin Esteban, who counsels high net worth individuals (meaning the very wealthy) on what to do with their money, shares he bought his first life insurance policy when he got married. His wife is a small business owner so he wanted to make sure she will be well provided for. 

Esteban considered the low interest rate environment plus the high inflation rates so he took out an insurance policy worth 25 times his projected annual expense. "I wanted to make sure she will have a comfortable life if something happens to me. I estimated our annual expenses and multiplied it by 25.”

Another way is to look at how much debt you owe. If you have a housing loan or a car loan, make sure to have insurance that will pay off any balance in the event of permanent disability or death. 

The cost for these are small, but the peace of mind to you now, and the benefits to your family just in case, are priceless.

#3 Buy what you need, not what they are selling.

Once you know how much insurance you need, and what insurance (life, non-life, pension) you want, ask family and friends to refer you to their trusted insurance agents. 

Personally, I like to buy from those who have been selling insurance for a long time. Not only do they have a storehouse of knowledge, it means there is a higher chance they will be there when you need them or when your family will make a claim. 

While you want to help a friend who started selling insurance recently, or a relative that wants to make extra income, they do not have the expertise (yet) that can help you plus you can’t help but wonder if they will still be doing it after a year, or two, or three.

Do not let sales talk steer you away from your goal – which is to buy protection for you and your family. Insurance agents have many off the shelf products, and they can also be ruled by incentives. 

They are likely to sell you a policy where they can earn the most commission so stick to what you need and want. 

It also helps to have an impartial financial planner review your proposals from different insurance companies before you sign on the dotted line.

As you pay your respects to loved ones lost in person, virtually or by prayer this weekend, remember your family that are still around and do what you can to protect them financially when the time comes.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.