Covered (or how much insurance do you need?)

It is ironic that life insurance is more often associated with death rather than with life. And yet, death benefits accounted for only 34.2% of the P7.5 billion in total benefits paid out last year by members of the Philippine Life Insurance Association. Dividends and endowments–which normally mature five years after the last payment is made–accounted for 44.8% of total benefits paid.

"For many Filipinos, talking about life insurance is one part tempting the gods and one part admitting that they are getting old and may die any time soon. Not many realize that we have so many other policies that can be enjoyed while the buyer is still alive," said Emmie Rivera, one of the country’s 30,000 life insurance agents.

Based on the latest data from the Insurance Commission, only 3.7 million or 5% of Filipinos was covered by some form of insurance, either individual or group, in 2000. During the same year, the industry sold a total of P25.7 billion in first-year premiums and renewals for an average P6,756.75 in premiums and/or renewals sold to each insurance buyer.

By any standard, this is a very low premium equivalent or capacity to buy insurance. Ideally, the premium equivalent or capacity to buy insurance is 10% of gross income. Using the more realistic target of 5%, the country’s P6,756.75 average annual premium translates to a gross income of less than P10,500 a month, inclusive of the 13th month bonus at the end of the year.

Poor market demand

"Economic standing is a major factor in the country’s low insurance coverage," Insurance Commissioner Eduardo Malinis has said over and over again, citing the P1.57 billion in premiums which were allowed to lapse or were surrendered for cash value by buyers last year. Yet, there are now a number of alternatives open to those who already have insurance or are about to buy one. For example, banks offer loan products that can help consumers pay off their premiums. Rather than let your insurance lapse, you can charge the premium to your credit card, avail of an installment plan (again using your credit card) or apply for an installment loan.

Because insurance is considered a form of savings or excess income, it can be purchased only when the basic necessities such as food and housing have been paid for. Thus, a developed country like Japan has an insurance coverage of more than 100%, which means that most Japanese individuals and households carry more than one insurance policy.

Different policies

"Unlike other forms of savings such as opening a bank account or other forms of investments such as buying real estate or jewelry, a buyer will not go out of his way to look for insurance. An effort has to be made to reach him to carefully explain the products to him," said Rivera.

Thus, health or medical insurance are now experimentally sold in drugstores. Simple products or those that don’t need that much explanation are also being marketed through the internet.

How much insurance to take is, of course, an individual choice. In terms of income replacement–either as a retirement fund or to tide over the family after death– a comfortable benchmark, however, would be at least five times the annual income of the buyer.

Before buying insurance, here are some helpful tips.

* List down what you want to save for. Aside from death, there are policies that you can buy to cover, among other things, future medical bills and your children’s college and even graduate school education. Many of these policies have maturity dates, which mean you get to use the benefits while you are still alive.

* Check with the Insurance Commission if you are dealing with an insurance company of good standing. You want to be sure the insurance company is financially capable to giving you the future benefits that you are paying for now.

* Validate the credentials of the insurance agent with the insurance company. You want to be sure that the premiums you can paying are indeed being credited by the insurance company.

* Always read the fine print in the policy contract before signing to avoid future misunderstandings and expensive court suits.