How to save for kids' education, employee benefits & retirement

Beware of little expenses; a small leak will sink a great ship. — Benjamin Franklin

Industry, thrift and self-control are not sought because they create wealth, but because they create character.   — US President Calvin Coolidge

Frugality may be termed the daughter of Prudence, the sister of Temperance, and the parent of Liberty.   — Samuel Johnson

Today, July 6, in the year 1189, the outstanding military leader Richard I (more famously known as “Richard the Lionheart”) was crowned King of England. We need great leaders in business, even in our society after the 2010 polls, in order to lead us in the challenging economic war wrought by these tumultuous times of seemingly weakening American and European economies.

Whether professionals or entrepreneurs, we should conserve cash and increase savings, whether through life insurance or traditional bank deposits, bonds, etc. I strongly believe that a positive twist to the present Philippine realty slump in sales and prices are the unprecedented golden opportunities for end-user buyers to consider investing now in discounted realty properties.

Thanks to the young officers of the Chinese Filipino Business Club Ruffy Kopio and Steven Ching for inviting me to be the speaker at their July 7 (Tuesday, 1 p.m.) joint business forum with the Department of Trade & Industry (DTI) at their CFBC Auditorium, eighth floor, Sky Tower, 68 Dasmariñas St., Binondo, Manila. Also speaking at the forum is DTI Undersecretary Merly M. Cruz.

Due to many readers’ letters, we are extending this question-and-answer series on life insurance and personal finance issues, which is a joint public service project of The Philippine STAR and the country’s largest homegrown life insurance giant, Insular Life. In these uncertain times, it is important to insure with the most financially stable and profitable insurer for peace of mind and long-term assurance. Here are more queries and the wise advice from the experts of Insular Life, which next year celebrates its 100th anniversary:

Question 1: Are educational plans still okay or should we just save on our own?

I always read your interesting columns in The Philippine STAR. Your series encouraging people to save money and to learn about money issues is very good. Hope you will continue this series to help educate more people about money issues. I’m general manager of Warner Brothers Philippines and we bring in Hollywood blockbusters like Ice Age 3 and Harry Potter to Philippine cinemas. I’m in my early 40s and have very small kids. With the many insurance or pre-need firms collapsing like Legacy, Pacific Plans, College Assurance Plan (CAP) and others, do you still recommend buying educational plans? Or do we parents just do our own savings in the bank for our kids’ education? Can you share the various educational insurance products of Insular Life? What other products of Insular Life benefit children or families with kids? —Francis Soliven, Ortigas Center, Pasig City

Answer

Thank you for your interest in the educational insurance products of Insular Life. You mentioned you are in your 40s and have very small children. I wonder if you are currently covered by a life insurance plan that will provide your family financial assistance when the inevitable happens. I ask this question because I believe that above all else, and even before we start discussing setting up funds for your children’s college education, you must make sure the family is protected from financial displacement in case the primary income earner passes away.  

If your answer to this question is “yes,” I will proceed in mentioning two of our educational insurance products. One provides a lump-sum benefit at the time your child is about to enter college (we call it College Provider) and the other provides semestral benefits starting from the first semester of college up until the eighth semester. Towards the last semester in college, the plan pays out a lump-sum cash benefit for extraordinary expenses usually incurred prior to college graduation (things like thesis and research work). Thereafter, cognizant of the mobilization expenses needed while looking for a job, a lump-sum cash benefit is paid after graduation. The product brand is I-Excel and it provides insurance protection for the parent to make sure there is funding for the child’s continued education in case the parent passes away before the child reaches college, in addition to insurance protection for the child. We recommend College Provider to pay for the other expenses associated with college education like books, school supplies and allowances. We recommend I-Excel for the basic tuition fees and miscellaneous charges that accompany enrollment.

If you think this product suits your needs, we can ask a qualified agent to meet with you to explain the merits of the program. We also invite you to visit our website, www.insularlife.com.ph, for more information about this product. We offer free financial needs analysis (FNA) on the website as well. The FNA can help you assess your priorities — whether indeed you should be looking at an educational insurance program or a whole life insurance plan to ensure the financial protection of your family.

As for your question if college insurance programs are recommended in spite of the prevailing issues concerning the pre-need industry, thousands of Filipinos have attempted to save up for a college education using other savings instruments and they have failed. They failed not because they were not serious in their intent but because they were not using the right tool for the purpose. Life insurance savings programs like College Provider and I-Excel are long-term assured savings programs. These programs keep your money “saved” for the purpose you intend to use it for. Funds are released at the opportune time, making sure you do not get tempted to spend it on other things.  

Finally, your point on the pre-need industry: Pre-need is not insurance. These two products are different in the way they are regulated and in the manner they are priced. The insurance industry is not in the same situation as the pre-need industry because insurance is bound by strict regulations by the Insurance Commission, the regulatory body of all life insurance companies. The insurance industry did not sell any open-ended obligation plans like some pre-need companies. For that matter, the industry has no exposure to risks it cannot assume.

Amelita F. Tamayo

Vice President & Head

Marketing & Agency Services Division   

Question 2: How can we encourage our employees to save?

My husband and I have a small business, but we are growing it very fast with hard work despite the global recession and I hope that in a few years it will be bigger. Even though we are not yet big, I already optimistically envision its success. Can Insular Life help business owners create a program or mechanism to encourage or even force employees to save part of their salaries so they can have a better future? If yes, how? If none, would they consider studying this option? Congratulations on your excellent and always-upbeat columns. —Sabrina Grace Chua-Lao, Pasig City, Metro Manila

Answer 1

We strongly believe that employees should be disciplined enough to save part of their salaries for their families’ financial security. Our company promotes two kinds of corporate programs for this purpose. First, we can offer group life insurance as part of your company’s overall employee benefit program. This can be on a contributory basis, meaning your employees are deducted for a portion of the premiums of the policy. Second, we can also conduct personal financial management seminars/presentations to encourage employees to voluntarily set aside part of their income for additional individual life insurance beyond their company-provided coverage. We call this our “Salary Savings Insurance” (SSI) program. Like you we are convinced that employees who regularly save part of their salaries can have a better future. Life insurance is not an expense; it is actually a way to save money for future financial needs with the unique benefit of providing those funds ahead of time to the family if the insured should pass away prematurely or become permanently disabled.   

Jesus Alfonso G. Hofileña

Executive Vice President & Head

Sales & Marketing Group

Answer 2

The Salary Savings Program of Insular Life enables employees to avail of our products and pay the premiums via easy monthly payroll deduction. Employees can save up a specific amount to augment whatever retirement fund they would like to have through Insular Life’s I-Assure product. They can also save up for the college education of their children with Insular Life’s I-Excel. If they plan to put up their own business, they can start saving the startup fund through Insular Life’s I-Value Max. These products are payable either in five or 10 years only.

Carlito V. Lucas

Vice President & Head

Worksite Marketing Division

Question 3: What is the best way to save for retirement? How do we plan for it?

What is the best way to save for retirement? How should I start planning and where to invest? I’m a newly married businesswoman. —Mary Huang-Sy, General Santos City

Answer

Retirement is a milestone we should look forward to. If prepared for well, it will give us more time to relax and enjoy the things we’ve long wanted to do but didn’t have the opportunity to because we were so busy working. Saving for one’s retirement should begin as early as possible because the more years of preparation you give, the easier and the better it will be for you to save sufficiently for your financial independence. To begin planning earnestly for retirement you should first set your income or pension target. How much by way of a monthly amount would you need to sustain your lifestyle and desired activities? One way to determine that is to consider your present cost of living. Since you know how much you and your husband are spending monthly to maintain your needs, this can be projected to estimate what that might be equivalent to when you reach the age you wish to retire. You will have to make assumptions on inflation and what interest rate the money you set aside for retirement can earn. Insular Life has professional financial planners trained to do these calculations, help you examine your resources, capacities to save and invest, and prepare a comprehensive retirement plan for you.

Similarly, your investment program must be carefully thought out and customized to your requirements, risk tolerances and wealth management objectives. There are many financial instruments available that will help you to fulfill your goals, but the most important thing to apply is the correct prioritization for what and where to put your money in. Start with ensuring that you provide adequately for your basic liquidity and financial security needs. At this first level you would need to set aside money for emergency cash purposes as well as life insurance protection against the risks of unexpected loss. Having provided for these basic needs you can then move up to the next level, which consists of putting money into savings accounts, time deposits, secure savings programs for the intermediate future like life insurance endowments for children’s education. This level is characterized by instruments that mainly preserve your capital while providing modest interest earnings. Once you have secured your savings requirements, you can proceed to the next stage, which is long-term investing. Here is where you will be setting aside money for your important future needs such as retirement, and you can consider the merits of mutual funds, government or corporate bonds of long duration, and even investment-linked variable life insurance. What these instruments do is earn higher returns for your financial assets over time, so you mustn’t be in a hurry to redeem them and spend the proceeds until needed (like your actual retirement). Finally, having provided sufficiently for your long-term investment needs, you can consider investing in even higher-yielding opportunities like stocks or commodities, real estate, or even business ventures where the opportunity to earn the highest returns is there but bearing in mind always that these are riskier instruments. In summary, you should manage your investments from the bottom up. Remember that high returns generally carry higher risks, so it would not be wise for you to start by putting all your savings in investments that could make you a lot of money but could also expose your capital to a greater risk of loss.

 Jesus Alfonso G. Hofileña

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For more inquiries, or if you want to schedule a Wealth Management Forum for your group, call Insular Life’s Brand Marketing Department at 582-1818 loc. 1850 and 5124 or e-mail brand@mx.insular.com.ph or visit website: www.insularlife.com.ph.

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Thanks for your letters, all will be answered even if not all can be published due to space limitations. Questions or comments are welcome at willsoonflourish@gmail.com or at my Facebook account.