Insurance 101: What Insurance Should You Get?
Filipinos nowadays are enjoying more disposable income. This is due to the increase financial freedom that we are experiencing due to increased economic activity and increased financial wealth. However, Filipinos still have an adverse feeling towards one of the most stable and reliable financial instrument available to them – Insurance. I bet you that if you ask them if they are willing to avail of insurance, they would cringe their nose and would adamantly say “no thanks”. So why are Filipinos still adverse about getting an insurance policy for themselves and their family? Let me count the ways.
1. Getting an insurance is tempting fate.
Filipinos have this notion that if you prepare for your demise, then you are courting it. They say that insurance is for your family and that you will not enjoy the fruits of your insurance. However, let me ask you a simple question. Who are you working for? Why are you working? Why are you stuck in the office, rendering overtime and braving the traffic? Isn’t it for your family? If you are working for your family, then you should also prepare for their future. Having insurance for yourself is preparing for their future. Insurance is the only financial product that is exact and guaranteed. No other financial product in the market can say this with certainty.
2. Insurance companies are not safe investments
People tend to mistake Insurance companies to Pre-need companies that is why they tend to shy away from getting insurance policies. Insurance companies and Pre-need companies cannot be as different from each other as apples to oranges. Insurance companies are governed by the Insurance Commission and need to have a minimum capitalization of Php 500 million. Pre-need companies are not. They just need to register with SEC and upon approval can sell immediately. You hardly read or hear insurance companies folding up simply because if an insurance company cease operations, all policies of that company will be absorbed by another insurance company and all in force policies will still enjoy the provision of their policies.
So you see, Filipinos are “afraid” of insurance simply because it has not been fully explained to them, and I think the industry is the main culprit of this. That is why I am going to explain what insurance is all about. Let me ask you, how many types of insurance are there in the market? 5? 10? 15? Did you know that there are only 3 types of insurance out there? What insurance agents are selling are actually by-products of these 3 types of insurance. Let me explain the three types of insurance.
As the name suggests, Term insurance is time bounded, meaning you pay premium depending on the length that you like. Let us say that you get a 5-year term, you are protected for 5 years, no more, no less. If you die within the term, the amount will be given to your beneficiary or family. You get the maximum protection for the least amount of money since this is the cheapest of the 3. However, when the term reaches maturity you will not get anything. However, this type can be renewed or converted to the 2 other types without the need for insurability (medical exam).
Endowment behaves just like a Term insurance since it is also time bounded. However, with Endowment when you reach the maturity and you are still alive, you will get the amount on your policy, tax-free and guaranteed. This is due to the fact that Endowment has cash values that guarantees you the face amount on the maturity of your policy. This is more expensive than the Term.
3. WHOLE LIFE
Whole Life is the most commonly sold type of insurance simply because it is the most cost effective and appeals to most of us since this secure our future as well as our family. Whole Life can be paid up within a specific term but your coverage is until the demise of the policy holder. Let us say you want to pay your Whole Life for 10 years only. You are not only covered for that particular period but you are covered until age 100. So you are paying a small amount for a protection to last your whole life.
So now that you know what the 3 types of insurance are, you need to ask yourself what is the best type of insurance suits your situation and your budget. As a side note, there are only 6% of insurable Filipinos that have insurance. The remaining 94% will definitely be a burden to the government and people since we will be the ones that will shoulder their insurance needs. So if you want to secure your as well as your family’s future start looking into having yourself insured.
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