LIFE INSURANCE QUESTION FROM "HAYDEN" A CEO & BIZ PARTNER
MANILA, JUNE 1, 2009 (STAR) BULL MARKET, BULL SHEET By Wilson Lee Flores - (Don’t spend your life working for money; save money and hire it to work for you. — Dr. John F Demartini)
(Waste is worse than loss. The time is coming when every person who lays claim to ability will keep the question of waste before him constantly. The scope of thrift is limitless. — Thomas Edison)
Thanks, readers, for your feedback to this ongoing question-and-answer series of the country’s leading newspaper The Philippine STAR, with the largest and oldest homegrown life insurance giant, Insular Life. Keep sending your questions and comments.
I strongly believe that all people should buy life insurance, not only as protection for loved ones and to secure your family’s future, but because we need to promote savings as a national habit to strengthen the economic foundations of Philippine society. Without savings, where can a society build up the domestic capital needed for infrastructures, for lending to businesses and for financing faster economic development? It is not true that all should be entrepreneurs; what is most important is that all should save and insure.
Among the recent letter writers is Evelyn B. Vertudes, a kind librarian in our former high school who is now connected to a non-profit preschool put up by her community church. Called the John Mark Christian School of Novaliches, it is located at 29 Petronia Street, Buenamar Subdivision, Novaliches, Quezon City. She is asking civic-spirited persons to support their feeding program and other help for children of tricycle drivers and other neighborhood kids. Thanks to her and other librarians for helping me when I was a “daily customer,” borrowing all kinds of books. I wish to take this opportunity to ask the national government to stop its odious and crazy new policy of taxing books.
Here are five questions and the corresponding advice from Insular Life executives:
QUESTION 1: ARE MUTUAL FUNDS A GOOD INVESTMENT?
I’m Ranie, 50 years old, an officer in a multinational firm ever since I graduated from UP. I wish to ask Insular Life if they have mutual funds and, if yes, what are the different types and is this a good investment? I am thinking of retiring soon, and my plan is to use my retirement pay in these two ways: part of the money I shall use for a new business venture, while the rest I hope to invest possibly in Insular Life mutual funds because I’m impressed with your columns telling us how well-managed and credible Insular Life has been for a century.
Insular Life offers investment-linked life insurance policies more commonly known as “Variable Unit-Linked” (VUL) life insurance. These are similar to mutual funds that pool the resources of clients and invest the funds in government bonds, shares of stocks of blue-chip companies and loans to corporations. In some respects, VUL has an advantage over mutual funds in that it provides superior investment returns and life insurance protection at the same time.
Life insurance companies have been doing long-term investing more than other financial industries because they secure risks occurring well into the future. We have become most adept and authoritative in acquiring long-term investment assets. Moreover, our investment activities are characterized by prudence and safety, knowing we have a solemn obligation to provide specific amounts of money to our policyholders as determined by their insurance policies. All income-earning breadwinners should be emulating your example of securing your eventual retirement. Life insurance is an excellent financial instrument for locking in your hard-earned savings to grow and become available when you retire. When it comes to having a financially secure future, it is not how much money you are actually saving now that is important but how much is kept saved! We earnestly hope many more Filipinos will embrace this paradigm for their family’s welfare.
Jesus Alfonso G. Hofileña
Executive Vice President & Head
Sales & Marketing Operations
QUESTION 2: THE BEST LIFE INSURANCE FOR COLLEGE GRADUATES
I am Aileen of Pasig City. My twin sons just graduated from college. What would be the best type of life insurance product for them to buy now at their young age, and why?
The practice of wealth creation should start as soon as a person is able to get into the discipline of saving regularly. When I graduated from college I had no material resources of my own. It took several years of working before I could buy a residential lot under installment. Once I did I was able to borrow money to build my house, then got married and started to raise a family. Even before that, however, I started acquiring life insurance because 1) the premiums were low due to my young age, 2) it was an affordable way for me to build up a future cash estate (since my limited income did not allow me to acquire other kinds of assets), 3) I wanted to get a head start in attaining financial security, and 4) I wanted to ensure that some of my money would be kept saved. An endowment policy was my first choice primarily because it would accumulate funds that I might need 10 to 20 years later, aside from providing me also with coverage against death or disability. However, when I married and our daughter was born a year later, I added more whole life and term insurance protection (with lots of accident coverage) to ensure income continuation for my family in case something happened to me. Perhaps this can also serve as a guide for you or your sons to consider.
Jesus Alfonso G. Hofileña
First, allow me to congratulate you on your two new graduates! It must have made you very proud parents. Now for your wife’s concern, let me put it this way: people purchase life insurance to address specific financial needs. And that differs from person to person depending on goals and dreams they want achieved at particular times. Budget is also an area of consideration. Outlook towards savings and investment would also be taken into account. At Insular Life, we do have a great array of plans to choose from. Options would range from traditional whole life and endowment products to non-traditional variable unit investment linked products. For us to arrive, however, at the best product for your sons, we have to sit down and go through the works. Please feel free to call me at 247-7042, 407-5664, 409-5439 or text 0922-855-7609 or 0919-355-7609 or e-mail email@example.com
Ida Sheng Jacob, RFC, LUTCF
District Sales Manager
Insular Life- Binondo Office
QUESTION 3: LOSING A PENSION PLAN’S ‘CERTIFICATE OF FULL PAYMENT’
I am Susan de Guzman of Quezon City. I once bought a pension plan from a pre-need firm but lost their certification of full payment. This pre-need firm still sends letters asking if I want to encash the pension plan; that I just have to show them the certification of full payment. But what if that has been lost?
Several years ago I served as CEO of my parent company’s pre-need subsidiary. The “Certificate of Full Payment” is given to the planholder once he/she has completely paid for his/her pre-need plan as assurance that he/she will receive future benefits for the plan that was purchased. It is convenient to present the Certificate of Full Payment later on when it is time to claim the benefits, but it is not the only document that can prove the said plan has been fully paid. You should make certain you have your actual plan contract plus the official receipts of your payments. You can even ask the company concerned to confirm your plan’s paid-up status. In other words, even without presenting that Certificate of Full Payment, the pre-need company should still honor its contractual obligations as long as the plan is in force and it would have all pertinent records to confirm the validity of your claim for benefits.
Jesus Alfonso G. Hofileña
QUESTION 4: WHY BUSINESS PARTNERS NEED TO BUY LIFE INSURANCE
Please call me Mike. I’m in my 30s, and two of my friends are my partners in our thriving business. I read before — forgot in what magazine — that in America some business partners insure themselves for the sake of business stability or continuity if any partner dies. How does this work and what are the reasons for this kind of life insurance? Do you have this also in Insular Life, and why should we have this type of policy?
I’ve dealt with cases similar to yours. It is assumed that all partners who formed a business firm are deemed important to the growth of the business. It is for this reason that we must protect the business firm against loss of business income resulting from the death or disability of a partner who is important to the business operation. Life insurance on the life of the partners protects the surviving partner against financial loss and acts as a reimbursement for the loss caused by the untimely death of the partner to ensure continuation of the business.
More often than not, the spouse of the deceased partner assumes the vacated position. In order to avoid conflicts on the interest of the business, insurance proceeds can be used to “buy out” the spouse’s share in the business and look for a more qualified replacement fit for the job. There is an agreement to use the money to buy out the interest of the deceased partner’s spouse. Yes, we at Insular Life do offer financial solutions on this specific type of need. To help you evaluate what specific insurance product matches your need, it is best suggested that we discuss this along with your business partners. Call 819-3776 or e-mail firstname.lastname@example.org.
Marilou L. Romero
Buendia District Sales Office
One of the many uses of life insurance is the subject of your inquiry — we call this “key man” insurance. As partners in a business, you and your friends have a financial stake in each other. You are the key men of your business because each of you brings the knowledge, skill and partnership to make it thrive. Because you each contribute value to your business, that value must be protected against the risk of untimely loss. Key man insurance works by purchasing a commensurate amount of life insurance for each of you with the company as the beneficiary. In the event any of you should pass away, the proceeds of the partner’s insurance policy are used by company to defray the expenses of hiring and training the one who will replace the key member. The other way to apply key man insurance is to use it together with a “buy and sell” agreement among you and your partners. Since you each own a share of the business, you can agree that in case any of you were to pass away, your interest in the business would be bought out by the company and paid to your family. A buy-and-sell legal agreement can then be drawn up and signed by all of you. The said agreement will be funded by your respective policies so that you do not have to set aside more company resources than what are needed to pay the premiums. This also ensures that the family of each deceased partner will be justly paid for his share of the business, and the company is passed on to the hands of the surviving partners.
Usually a simple whole life policy would suffice as key man insurance unless you would like other living benefits as well. A knowledgeable Insular Life financial representative can discuss this with you in greater detail.
Jesus Alfonso G. Hofileña
QUESTION 5: CAN ANYONE BUY LIFE INSURANCE AND KILL FOR THE MONEY?
I suggest you hide my identity under the alias Hayden, because of the nature of my question. Can my girlfriend or a future mother-in-law or just anyone buy life insurance for me, then have me killed if they badly need or just want to get the big insurance money? This question might sound wacky or hypothetical, but I’m just very curious.
Hayden, your question is a very valid one. In the cases you mentioned where the policyholder is different from the person insured, the death benefit under a life insurance policy poses a very tempting incentive to the policyholder for the misuse of such life insurance. The proposed insured may of course refuse to be covered if he senses that it will put his life in danger. But in cases when the proposed insured is unaware of the risks, the law, by reason of public policy, imposes certain requirements to protect his/her interests.
The answer then to your question is no. Life insurance cannot be used as an inducement to commit murder. It cannot even be used for wagering or speculating on the life of the person insured. To protect the public from persons with such evil intentions, the law requires that the insurance applicant should have an “insurable interest” on the life of the proposed insured at the time of the application/inception of the insurance. Otherwise, such insurance application shall be declined, or if the insurance policy applied for has been issued, the same shall be null and void (Section 3, Insurance Code of the Philippines, PD No. 1460 or “Insurance Code”).
This means that the relationship between the insurance applicant/policyholder and the proposed insured must be such that the insurance applicant/policyholder would derive benefit from the continuation of the insured’s life or that the said insurance applicant/policyholder would suffer damage or sustain a loss on account of the death of the insured individual. As you will note, the insurable interest requirement is intended to prevent persons from profiting from insurance on the lives of others.
The Insurance Code enumerates the cases where there is insurable interest, as follows:
“Section 10. - Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.”
As a last note, even if there is an insurable interest on the part of the insurance applicant over the life of the insured at the time of the issuance of the insurance policy, the beneficiaries shall not be entitled to receive the proceeds of such life insurance if they are involved in willfully bringing about the death of the insured (Section 12, Insurance Code).
Atty. Renato S. de Jesus
Vice President & Head
Legal Affairs Coordinating Office
Chief News Editor: Sol Jose Vanzi
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