OFW letters from Australia, Dubai, California, and a martyr wife

Thrift was never more necessary in the world’s history than it is today. — Francis H. Sisson

Today is the 506th birth anniversary of reputed French seer Nostradamus, who supposedly foretold our future. Sorry, I believe nobody can tell the future except God. However, one sure way to have a more secure future is to consistently save money now, every day, as a habit and discipline, especially with the uncertain world economy. One of the best ways to have forced savings for a secure future is to buy life insurance products from reputable, financially solid and well-managed firms like 99-year-old Insular Life.

What about forecasts on the stock market, the price of gold and oil? My idol, the world’s wisest investor, Warren Buffett, once said, “We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now (Berkshire Hathaway vice chairman), Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

One of Warren Buffett’s forecasts that I like is: “All cars on the road everywhere electric in 2029.” Wow!

Thank you to the officers and members of the Newsmags Dealers Association of the Visayas for giving this writer the privilege of speaking to them at their Nov. 27 convention here in Manila. It was also great fun answering your questions.

Thanks also to the many overseas Filipino readers of Philstar.com and for your letters. We are publishing some OFW letters in this Q&A-series project of The Philippine STAR and the country’s biggest, most profitable homegrown life insurer, Insular Life, as part of our advocacy to promote a national culture of savings and to help educate the public on personal finance, life insurance and other money issues. Keep on writing!

Question 1

Erwin Lagura, 27 years old, Adelaide, Australia — Hi, Wilson. This is regarding your recent columns about life insurance and saving money, which I read on Philstar.com. I’m single and the breadwinner of our family, a recent migrant to South Australia and currently working as a government employee. I’m exploring options on shoring up my savings both here and in the Philippines, and was wondering what the options would be for someone like me who is practically an OFW. What would be the implications if I take on an insurance policy in the Philippines, i.e., tax, payment options, etc.? My questions are very critical since my dad is undergoing chemo for his cancer and my family depends on me for the treatment. Cheers from Adelaide.

Answer 1

As the breadwinner of your family, your primary concern is income continuation. Who would take care of your family’s finances when you’re no longer there to provide support? Life insurance, particularly, a whole life insurance policy, is designed to replace the lost income stream resulting from the loss of the family’s provider. Spreading your investments among different countries is a wise move. This is one way of diversifying your investments and consequently reducing the risks of your portfolio. Regarding the tax implications, there are two types of taxes associated with life insurance: income tax and estate tax.

Regarding income taxes, in the case of maturity proceeds (cash received when a policy matures while the insured is still living), the amount taxable as income is the difference between the amount received and the total premiums paid. For death proceeds, the amount taxable is the interest earnings on death proceeds (if the beneficiary opted to leave this with the company to earn interest). Death proceeds and cash surrender values are not subject to income tax.

Estate Taxes are imposed when a property is transferred to another upon the death of the estate owner. When the life insurance beneficiary is irrevocable, death proceeds are not subject to estate tax. On the other hand, when the beneficiary designation is revocable, the death proceeds shall be taxed.   As a standard practice, life insurance companies do not withhold taxes. The policy owner or beneficiary has to declare the proceeds received and pay the taxes directly to the BIR.

When it comes to payment facilities, overseas options are Internet banking and remittance centers. With Internet banking, insurance premiums may be paid online. This requires the policy owner to have a deposit account in the bank, from which the premiums are deducted, and to enroll the bill that is to be paid online. When paying via remittance centers, the procedure for premium payments is similar to sending money to a family member’s bank account here in the Philippines. The money is converted into Philippine currency and sent to the insurance company’s bank account. Remittance and bank charges need to be paid as well.

Cary Casipit

Vice President & Head

General Agencies & Special Markets Division

Question 2

Mary Ann, 33 years old — I am an overseas Filipino worker in Dubai who sends all my earnings back home to my husband and our two children, but I have heard news that my husband is unfaithful and wastes money irresponsibly. He keeps telling me that there’s not enough money, although he has work in a city hall. Can I secretly buy life insurance with only my two children as beneficiaries and exclude my husband? I send money to my three brothers, too, but I heard they also waste money on vices. Any advice?

Answer 2

Mary Ann, only entrust your hard-earned income to someone who has the required financial savvy and discipline. Take charge of your finances. One cardinal rule of financial management is, “Save first before you spend.” In your case, set aside money to save and invest first before you send money back home. What are the things you should be saving and investing in? The very reasons that made you decide to work abroad — your children’s college education, a home you can call your own, your retirement, capital for your dream business, and so on.

Talk to registered financial consultants. They can help you come up with a plan to address your family’s present and future financial needs. In the meantime, you can set a monthly budget for your family to spend and keep the rest of your funds in a savings/investment program for future use. What will you include in your monthly budget? You can make a list of all the things your family will need in a month to project the amount you will send them, i.e., monthly bills like utilities, groceries, rent, etc. This way you will not deprive your children of the basic things they need and at the same time any excess funds will not be used for unnecessary expenses. 

When you become the owner of a life insurance policy, you have the right to designate your beneficiaries. Yes, you have the option to limit the beneficiaries to your kids. You can even specify each child’s share in the insurance proceeds. If you wish to appoint a trustee (person/institution who will take care of the funds until your children reach legal age) other than your husband, that can also be arranged.

Cary Casipit

Question 3

Clarisse del Rosario, 18 years old, Quezon City — Before our eldest sister left for California to work as a nurse, she mentioned to me that she’d like to ask you if a person like her working in the US could buy life inurance from a Philippine-based firm like Insular Life? Will there be any problems, like her need to get a medical checkup or will there be additional costs? She supports our family and is still single. Also, what other investments should she plan for?

Answer 3

Clarisse, there are several ways your eldest sister can have herself insured with a Philippine-based company like Insular Life. The easiest would be for her to apply when she is back in the country for a brief visit or a vacation. The advantage of this is that it would be more convenient for her to undergo medical examination, if needed, or fulfill other requirements that might be needed by her application. Another possibility is to make a special arrangement for her to fill up the application form in a Philippine embassy or consular office in the United States. While not a common procedure, it has nonetheless been done in the past. If you could forward to us your sister’s e-mail address, we can write to her directly on this matter. As for what the specific requirements and costs of her insurance policy would be, that would depend on the amount of coverage as well as on the specific product she would be interested in. We can likewise furnish her with details on our various insurance policies and their benefits. We commend your sister for her sense of responsibility in looking out for your family. Insular Life would certainly be privileged to be her partner in this objective.

Jesus Alfonso G. Hofileña

Executive Vice President & Head

Sales & Marketing Group

 Question 4

Diana Catherine Tan Lim, 32 years old, housewife, businesswoman, Zamboanga City — Hi, Wilson. First of all, The Philippine STAR, Insular Life and you should be commended for undertaking this question-and-answer series on personal finance and insurance. The story of your life was not only interesting but also inspiring. Is there such a thing as being over-insured? What is the best way to compute the ideal amount of life insurance a person needs?

Answer 4

One becomes over-insured when the amount of insurance coverage is disproportionately in excess of one’s economic value. Think, for example, of a street beggar with no steady means of income getting a P1-million insurance policy. However, this is why insurance companies require financial information/disclosures on all applicants precisely so cases of over-insurance can be avoided. As for calculating the appropriate amount of life insurance a person needs, that would first and foremost depend on the reason for the coverage in the first place. For example, if the purpose of buying life insurance is for funds to pay estate taxes when the insured passes away, a tax lawyer can readily compute what that amount is based on the value of the inheritable estate. On a more fundamental aspect, we always recommend that breadwinners (i.e., persons with income used for the welfare of others) should secure enough life insurance for the income protection of their families. There are two generally used approaches to determine the appropriate amount of coverage, and it is the insured person who should decide which of these two methods he/she prefers. One approach is to provide money for the continuation of the family’s regular monthly expenses for a pre-determined period. For instance, if the breadwinner decides he wants insurance funds to pay for his family’s monthly expenses for five years, and assuming further his average monthly family expense is P50,000, the right amount of life insurance coverage would then be P3 million (P50,000 monthly multiplied by 60 months). Another approach is to provide that monthly family maintenance expense from the interest earnings of a life insurance policy proceeds. The advantage of this approach is that the insurance proceeds can be kept intact for future inheritance purposes. If this is the method desired, then what would have to be computed is the average monthly interest rate that the principal can earn. For example, if P50,000 monthly is needed, if this is one percent of the fund’s earnings, then P5 million would be needed, assuming that money can earn one percent a month. Since interest rates today are quite low, it is more likely that P10 to P15 million of insurance coverage would be needed. We would highly recommend that you sit down with one of our trained financial risk planners so your specific requirements can be computed.

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@.insular.com.ph or visit website: www.insularlife.com.ph.  

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Comments welcome at willsoonflourish@gmail.com or at my Facebook account.