Can medical insurance be added to life insurance? Can we lessen the corporate tax rate?

A penny here, and a dollar there, placed at interest, goes on accumulating, and in this way the desired result is attained. It requires some training, perhaps, to accomplish this economy, but when once used to it, you will find there is more satisfaction in rational saving than in irrational spending.

—PT Barnum

If the new government can really implement its declared investor-friendly reforms, then this writer believes the Philippines under President Noynoy C. Aquino can really become truly globally competitive. Apart from lessening corruption and pushing for more tax/customs collections, I urge President Aquino to study ways to reduce the business tax rate in the Philippines to encourage more honest tax payments and also boost investments.

Thanks to Philippine STAR reader Dr. Philip David Truscott of the Ateneo de Manila University’s Department of Information Systems and Computer Science for reading this column, for e-mailing feedback and for even sending us his book on Philippine taxes. When I complained since before that our corporate tax rates are way too high, Dr. Truscott e-mailed me a chart confirming this — the Philippine corporate tax rate in 2009 was 30 percent, while our neighbors like Hong Kong had 16.5 percent, Singapore had18 percent, South Korea had 24.2 percent, while China, Taiwan and Malaysia all had 25 percent. Dr. Truscott further added what I and many entrepreneurs have for many years been complaining about, that making the tax burden on businessmen heavier is not just the high corporate tax rate, but also the shocking corruption levels, the sheer complexity and exasperating unpredictability of our tax system!

Speaking of taxes, Philippine STAR reader Hailey Villarica-Ong e-mailed an essay stating that her father Henry Villarica is the owner of the Villarica pawnshop chain and not his brother, William Villarica, who also says he is not a tax evader because he claims to have allegedly closed down whatever few pawnshops he owned in year 2002. That essay also asserts that William Villarica is not connected to the Villarica chain. However, BIR commissioner Kim Jacinto-Henares asserted that they have a strong case against luxury car lover William. This is being published to air the side of the Villaricas, though I still believe the BIR could be right on William Villarica. By the way, to help estate taxes we should buy life insurance protection.

Thanks to all readers for your many questions in this series promoting savings as a national habit and the importance of life insurance. Here are answers by officials of the Philippines’ biggest, oldest and most profitable homegrown life insurance giant, Insular Life:

Question 1

Gleeko Magpok, 21 working student, University of the Philippines, Diliman

I read your recent columns on life insurance and somehow I got interested. I’m a European Languages student in UP Diliman; my father died in 2005 and my mother just last year, and I’m a working student. I’m really fond of investments and as a matter of fact, at the age of 21 and single, I already have life insurance policies with Sunlife and AXA. Both are variable insurances so funds are invested in the company’s investment portfolio. My question is: Is it fine for a young man like me to acquire such insurance even if I don’t have dependents yet? Sometimes, I’m thinking of canceling the policies, especially with Sunlife, because it’s worth a million and the payment is somehow burdening. I bought the Sunlife in October 2008 and the AXA in June 2009. Please help me decide and tell me whether these are good investments instead of mutual funds. Also, what books can you recommend on investments?

Answer 1

Hi, Gleeko! I am impressed that someone so young has committed to long-term financial protection and investment. We in the insurance industry espouse this type of financial planning and are actually working towards educating more people like you to follow suit. As for your question, I am of the opinion that your choice of product (Variable Unit linked insurance plans) suits the needs of someone in your particular life stage. As a young, working student, single without dependents, you are best advised to put as much of your funds into products that grant you access to a long-term investment portfolio while at the same time providing some degree of insurance protection. The variable unit linked insurance plans you currently own achieve your purposes for now. However, our needs change as we progress through life and for this reason, I suggest that you regularly check if your current needs are met by your protection and investment portfolio. Insular Life offers a free financial health check. In fact, if you visit our website, www.insularlife.com.ph, you can use the financial calculator for free, allowing you to make an assessment of your needs on your own.

AMELITA F. TAMAYO, Insular Life First Vice President and Chief Marketing Officer

Question 2

Felix Ang, 50 years old, president of CATS Motors, Inc., Greenhills, San Juan

I read your columns and I personally have life insurance. I have a question: why is it I heard that if an insured person lives beyond 80 years old, one gets nothing? Is this true? Another question: during the Ondoy typhoon and floods, what is the policy of insurers about “Acts of God” like that regarding the destruction of properties? My opinion on life insurance is that we should start buying it while young and healthy, but choose your plan very well. I started buying life insurance in my late 20s, but today I’m diabetic and nobody will insure me. I agree with your advocacy on savings and that all should buy life insurance, especially if you have family and kids.  

Answer 2

Thank you, Mr. Ang, for your questions as well as for believing in the need for life insurance. Regarding an insured person getting nothing from his policy should he live beyond 80 years old, this is not so. If his policy is a Whole Life insurance and continues to be in force, he will definitely enjoy protection benefits as well as increasing cash values until the age of 100. So perhaps if what you heard was about a specific person, then maybe the kind of policy he has matures at age 80, like a 20-year endowment that he bought when he was 60. The best way to be certain is to examine his specific policy contract. 

As for “Acts of God” provisions in property insurance policies, this would consist of an additional liability that the insurer will assume if such a provision is also included in the coverage that was bought. In other words, a policyholder can make further financial claims invoking this particular benefit. But if it not specifically included in the contract he cannot. Allow me to also compliment you for your foresight in establishing financial risk protection for yourself and your family while you were still young. It reflects your ability to think long-term for the welfare and peace of mind of your loved ones.  

Jesus G. Hofilena, Insular Life Executive Vice President & Head of Sales & Marketing Group

Question 3

Carlo T. Corro, 32 years old, single, Salcedo Village, Makati City

Your columns on business topics are very enlightening. Regarding your new series on life insurance, I personally bought a policy after college in 2001. Just in case something happens to me, I want my parents to be the beneficiaries. I also bought medical insurance from Blue Cross in 2005. My question is this: our firm Penwood is involved in biofuels and renewable energy involving projects averaging US$50 million to $100 million, but only foreign insurers can handle them. Why is it foreign and even local foreign banks want foreign insurance firms for these big projects? For life insurance, can a client request for a life insurer to already add medical insurance in the policy one is buying, for example, from Insular Life? Congratulations for promoting frugality and life insurance in the Philippines!  

Answer 3

On your first question about the preference for foreign insurers on your big projects, it may be because the ability or capacity to cover such a specialized risk may not yet be available locally. Usually when there is an uncommon type of risk to be insured there may only be a handful of companies prepared to handle it, and it would not be surprising if it is a foreign or global insurer. Nevertheless I think it is also advisable to ask the insurance companies operating here if they can take it on. Remember that a number of insurers in the Philippines are multinational companies; hence their global network may be able to handle it. It would then be easier to communicate and transact with a Philippine-based company.

I remember a friend who died when he was in his 20s. He happened to have a life insurance policy bought from a foreign company when his family traveled to that country. Eventually his beneficiaries received the proceeds of that policy but only after more than a year because of the difficulty in communicating with an offshore company, regulations in both that country as well as in the Philippines about foreign exchange transfers, and so on. Why complicate matters if an insurer already legally operating in the country can provide for the risk being insured?

As to your second question, yes, and particularly in the case of Insular Life, a client can request for additional supplementary coverage or “riders” to his existing policy that can provide, among others, more medical benefits. For instance, we can offer a “dread disease” rider to provide funds for major or critical illness expenses upon diagnosis, or a hospital income rider that will pay a specific amount of money for each day of hospital confinement. Such benefits can be provided but may also require additional requirements from the client for underwriting the risk.

Jesus G. Hofilena, Insular Life Executive Vice President & Head of Sales & Marketing Group

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Thanks for your letters, all will be answered. Comments welcome at willsoonflourish@gmail.com, follow WilsonLeeFlores on Twitter or e-mail me on Facebook.