I believe that thrift is essential to well-ordered living. — John D. Rockefeller
Today in the year 42 BC was the birth date of Tiberius, a great Roman general who was later an emperor with a mixed legacy. Whatever Roman historians may claim about his rule, at least he didn’t bankrupt his country with record budget deficits and irresponsible spending, because Tiberius left the imperial treasury with nearly three billion sesterces upon his death. Whether in our personal finances, in businesses or running a country, we should not spend more than our incomes, we should not incur too much debt, we should save money!
Thanks for your many e-mails, questions and comments on this column’s question-and-answer series for readers to ask anything about life insurance, personal finance and investments. This is a public-service project of The Philippine STAR in cooperation with the Philippines’ biggest, oldest, most profitable and trusted homegrown life insurance giant, Insular Life. Keep on sending your questions! Here are this week’s:
Question 1
Ruffa Gutierrez, actress in the upcoming movie Shake Rattle & Roll, host of ABS-CBN’s The Buzz, Miss World 1993 Second Princess, single mom with two kids: I believe in your advocacy of promoting a national culture of savings. In my case, I mostly invest in real estate. Instead of buying a US$3,000 outfit, I now put my money to better use and also save. What is the best type of life insurance for a person in my situation? Another question: what is the best financial investment now, because I remember investing in stocks and mutual funds, and last year both my brother Richard and I lost money in our US-dollar mutual-fund investments with AIG, which is an insurance giant.
Answer
The choice of an investment vehicle should ideally be the result of a comprehensive personal financial planning exercise where personal financial goals are identified and laid along a timeline, because of the inherent volatility (tendency of investments to go up or down) of some growth-oriented financial instruments like stocks and mutual funds. While it is inevitable that it may rise/drop in the immediate term (as you have experienced last year with your US mutual fund investments), the performance of these investments is very likely to outperform fixed-income instruments (time deposits, etc.) over the long-term (at least five years into the future).
For your insurance requirements you may want to start with basic life insurance coverage that would financially provide for your two kids in case of your premature demise. The rule of thumb here in terms of the amount of coverage is an amount that would enable your two children to enjoy the quality of lifestyle you envision them to have; you may then add on certain “riders” (attachable benefits) that would cover you for certain specific life risks like dreaded diseases, personal accident or physical incapacity. Another option is for you to consider some investment-linked insurance packages that may help you set up a comfortable retirement nest egg
As to your question on investments, a practical rule of thumb is to identify “when” you would need the money to fund a financial goal; for goals happening in five years or less, a fixed income instrument (treasury bills/corporate bonds) would be a good choice. For goals from five to 10 years, consider a mutual fund that would have a balanced portfolio (50 percent in stocks and 50 percent in fixed income), for goals that are at least 10 years into the future, you may be better off investing in an equity fund.
Jeff Gonzales, RFP
Financial Consultant
Question 2
Marian Rivera, actress on GMA-7’s TV series Darna, model: I believe life insurance is good for individuals and people, but I’m not so sure about the economy because that’s a much broader topic. I believe in saving money, but balancing it also with enjoying the fruits of one’s labor and not just leaving all of your earnings to your kids. I support no relatives, my father has two restaurants in Spain and my mother is also okay in Cavite.
Answer
Marian, you are extremely blessed and privileged in your present situation with the fame as well as financial independence you are enjoying. You certainly have the right attitude in saving part of your money and entitling yourself to the fruits of your labor at the same time. Good as present-day circumstances might be, however, no one can foretell what the future may bring. It pays to always be prepared for any eventuality, whether positive or negative, and this is the essence of financial planning. Even if you don’t need to support anyone at this time, you will always need to provide for yourself in the future — when you decide to get into another business, when you have important projects you want to do, and when you retire.
Life insurance can be utilized as a long-term assured savings mechanism to actually strengthen your current savings program. Think about it as another means to save, except that it is money you are putting aside that you will not touch until the those milestones in your life occur many years later. In the meantime your savings accounts are now your means to spend for yourself and for those dear to you. The protection value of life insurance is always there “just in case,” even as the portion of your income that you set aside through life insurance continues to accumulate and is preserved against early withdrawal. Life insurance is neither an expense nor just death coverage. On the contrary, it provides more living benefits than you may imagine, such as a facility to keep money saved for those crucial needs in the future despite whatever twists and turns life may have in store for you.
Jesus Alfonso Hofileña
Executive Vice President
Head, Sales & Marketing Group
Question 3
(My question for Insular Life based on Marian Rivera’s comment.) Can you please explain why life insurance is important or beneficial not only for individuals or families, and what are its advantages to the overall economy of a country?
Answer
You also obviously care a great deal about the future of the Philippines. If so, you should know that the life insurance industry is one of the vital engines of economic growth and stability for the country. Premiums collected from life insurance policies are pooled and invested into the nation’s long-term development. The insurance industry is a major buyer of government securities that fund the construction of roads, schools, other infrastructure projects and so on. Every progressive country in the world is supported by a strong and vibrant insurance industry that is a primary source of long-term domestic capital because life insurance encourages millions of individuals to keep their money saved well into the future. Hence, in patronizing life insurance for yourself you are also helping to strengthen the economic future of the Philippines.
Jesus Alfonso Hofileña
Question 4
Donna May G. San Luis, 28 years old, officer of Linden Suites, Ortigas Center, Pasig City: Congrats on your interesting columns, which I always read. How do we safeguard our life insurance in these times of uncertainty when firms like AIG in America or Pacific Plans and CAP here are unstable? I thank Insular life, because my life insurance is fully paid and I thought we benefit only when we die, but I was surprised when after the recent typhoon Ondoy hit our home, they told me I could avail of a loan from my life insurance. Thanks and more power to The Philippine STAR!
Answer
Thank you, Donna, for your comments. Insular Life is pleased to render service to you through your policy with us. You have also given us an excellent opportunity to once again reiterate to the readers of this column that the old notion of life insurance being only a death benefit is no longer true today. Life insurance is a risk management financial instrument. It transfers the risk of financial loss from the insured to the insurer, meaning, if anything happens to the policyholder the company pays the stipulated financial benefit to his beneficiaries. Whatever life insurance policy one chooses will always have this essential feature. But life insurance is much more than that.
As you yourself have experienced, it also serves to accumulate a part of your premiums so you can avail of emergency funding via a policy loan if an unexpected situation like typhoon Ondoy happens. Moreover, we also have endowment policies that pay out at regular intervals before the maturity of the policy. This is convenient for programmed expenditures in the near future. What about health protection as well? You can supplement your insurance coverage with health and medical indemnity benefits such as critical illness funding and even daily hospital cash payouts so there is money for medicine and other expenses. You would be surprised at how many benefits an insured person can enjoy from his life insurance policy while he is still alive. And because Insular Life is a mutual company, every policy we issue provides for dividend payments to our policyholders as well.
Jesus Alfonso 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, e-mail brand@.insular.com.ph or visit www.insularlife.com.ph.
E-mail questions to willsoonflourish@gmail.com or to my Facebook account, thanks so much!