Life insurance is not the same as educational or pre-need plans

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

 This writer believes that our advocacy of promoting savings as a national habit in the Philippines is all the more relevant nowadays, with the world economy now in uncertainty. The US economic recovery has lost steam, China is deliberately slowing down its economic growth, Europe is still in crisis except for dynamic Germany, and Japan is still in a quagmire. In these uncertain times, I urge everyone  rich or poor  to be prudent, save cash, lessen unnecessary loans, and get life insurance! Not everyone needs to be an entrepreneur to become rich or financially independent, but all should save money.

Keep on writing! Thanks for your interesting letters asking about personal finance, investments, other money issues and even life insurance for your pet dogs (Insular Life said there’s none for dogs or any other pets for that matter, sorry). One popular query is on the misconception that the many collapsed or delinquent pre-need firms selling educational plans are life insurance firms; they are not. Please read Question No. 4 and the reply of Insular Life EVP Jesus Alfonso G. Hofileña.

This question-and-answer series is a public service partnership of The Philippine STAR with the country’s biggest, oldest and most profitable homegrown life insurance giant, Insular Life, which celebrates its 100th anniversary this year.

Thanks to the 5,000 members of the Drugstores Association of the Philippines (DSAP) for inviting me as keynote speaker for their National Convention in Taal Vista Hotel in Tagaytay City on Sept. 4. Thank you also to Kyoto University in Japan for their invitation to speak this autumn about the socio-political and economic situation of the Philippines.

Question 1

Eredito P. Feliciano, chairman of Calfurn Manufacturing Philippines, Inc., 57 years old, married, Angeles City, Pampanga

Your columns in The Philippine STAR are very interesting, not only in the Business Life section but also in Sunday Life with your delightful range of topics. My own father died when I was only 12 years old and he was only 33 when he died of rheumatic heart disease while an employee in the former Clark Air Base of the Americans. Our late dad had no life insurance protection and I’m the eldest of nine siblings, so it was our great mother, Rosita Pinpin Feliciano, who did all sorts of work and operated a small sari-sari store to raise us. Today, on my own I have built up my business, which now has 2,000 employees. We export our Philippine-made furniture to the USA and Europe, to stores like Harrod’s, Neiman Marcus, Bloomingdale’s, etc., and we are soon planning to open retail outlets in Metro Manila to make our products available to local buyers. One of our many customers includes singer Celine Dion, with America’s People magazine once featuring her on the cover and sitting on one of our Philippine-made rattan chairs from Calfurn. What kind of life insurance products can you recommend for me, both for investment and protection purposes?

Answer 1

Congratulations! It is always a delight to hear of individuals like you doing very well in exposing the craft of Filipinos abroad. You expressed interest in a life insurance product that can provide protection while at the same time meeting your investment requirements. You did not mention if you already have existing life insurance coverage, so my answer will be premised on the assumption that you have none. Given this, I recommend a whole life insurance policy with accident and disability riders for your protection needs. The life insurance benefits kick in when the inevitable happens. This will provide your family the funds needed to help them adjust to the financial displacement brought about by your absence.

I recommend you attach accident and disability riders to your whole life insurance policy as well. In the event you become disabled or meet an accident, you will not be able to attend to the day-to-day operations concerns of your export business. This will cause a temporary — or in some cases, permanent — financial displacement to you and your family. An accident and disability rider may help you and your family adjust to the situation.

Since you aspire for investment as well, I recommend a variable unit-linked (VUL) life insurance product. This product provides life insurance protection (equivalent to 125 percent of your investment or the fund value, whichever is lower), while allowing you to earn returns from a basket of funds linked to equities, bonds or a combination of both. With the encouraging performance of the Philippine stock market, VUL investments have been giving very good returns. As of Aug. 2, Insular Life’s Wealth Series (our VUL line) has given the following returns since its inception: Equity Fund- 212 percent; Fixed Income – 149 percent, Balanced Fund – 170 percent. If you wish to know more about these products, please log on to www.insular.com.ph. You may also want to contact our San Fernando office at (045) 961-5490/7798/2695.

AMELITA F. TAMAYO, Insular Life First Vice President & Head of Marketing & Agency Support Division

Question 2

Kirkland Wang, 30 years old, married, co-founder of California Berry yogurt chain, Ortigas Center, Pasig City

My business partner Kyle You and I read your columns. We congratulate you on your advocacy of savings as a national habit. We pioneered California Berry in 2008 in the Philippines and now have 18 branches. Kyle studied college in California and he said he heard before that in the US, there’s life insurance that business partners buy where if any partner dies years later, this unique life insurance product can be used to buy out the shares of the late partner’s heirs if they’re no longer interested in being in the business. Is this correct and is there also such a product in the Philippine life insurance industry? By the way, my father died when I was 21 and I’m still in college, so I appreciate your advocacy on savings and financial planning.

Answer 2

Yes, Mr. Wang, we do have business insurance here for exactly the kind of situation you described. It basically funds the buy-and-sell agreement that enables the company to reacquire the shares held by a deceased partner. It is, in fact, the foundation on which life insurance was established — to indemnify a person who has a financial stake in another person’s life. In the case of business partners, they depend on each other to make the company grow and prosper; hence each partner has an insurable interest on the other. We at Insular Life would be more than happy to personally discuss this with you in greater detail. We hope you will give us that opportunity.

JESUS ALFONSO G. HOFILEÑA,  Insular Life Executive Vice President & Head of Sales & Marketing Group

Question 3

Prof. Enrique M. Soriano III, 43 years old, Ateneo Graduate School of Business at Rockwell Center in Makati City

I’ve always enjoyed reading your columns through the years, especially your many historical insights and analyses. Can I invite you to speak in my MBA class? I personally got life insurance 10 years after my marriage and when I had a son. How many are insured in the Philippines, maybe only 20 percent of the population? I think in other Asian countries like Japan, it’s probably 90-plus percent and each person has two or three policies? I think many in our society suffer from ignorance about the benefits of life insurance. Also, many are under-insured due to the technical nature of the products. The mid-market and low market segments are not well-informed about life insurance. I suggest that collective efforts by government and the private sector should promote life insurance and educate the public more about its importance.

Answer 3

Based on the latest report (as of 2008) from the Insurance Commission, market penetration is estimated at 14 percent of 91.1 million Filipinos. The relatively low income level of the majority of Filipinos is the main reason for the low market penetration. However, you are right in observing that even for the market segment that can afford to pay insurance premiums, much education needs to be done to make them understand and appreciate the value of life insurance. For this purpose, the Philippine Life Insurance Association, in partnership with the Insurance Commission, has ongoing educational campaigns to make Filipinos appreciate and understand the value of life insurance. To supplement this, Insular Life conducts free seminars on wealth management and risk protection to help Filipinos make informed decisions about their long-term financial well-being. This program is called the Health and Wealth Forum. We offer this seminar free of charge to companies, communities, schools and universities, hospitals and other worksites. Via the Health and Wealth Forum, we hope to fulfill our advocacy on financial education as a means for more Filipinos to look ahead and be assured of their future. Should you be interested in conducting a Health and Wealth Forum in your company or community, please e-mail cvmd@insular.com.ph.

AMELITA F. TAMAYO, Insular Life First Vice President & Head of Marketing & Agency Support Division

Question 4

Toffee Calma, 26 years old, actor, model, retail entrepreneur

I agree with you that people should be encouraged to save money. My question about insurance in the Philippines is also a common and popular question by many others: what did all those insurance companies that sold educational plans do with the premiums given by so many people? How come many of those controversial firms were allowed to go down and where did they invest all that money? As a result of those problems, I’m more inclined to buy only medical insurance because I honestly fear other insurance firms like life and educational. Also, is it correct that I urge the public to scrutinize and check the backgrounds of insurance companies: how big they are, how old they are, and what are their track records?

Answer 4

What affected the pre-need sector several years ago was a crisis of confidence that the entire industry has not yet fully recovered from. The major reasons why those companies failed to meet their contractual obligations were the kind of products sold (i.e., unlimited liability plans versus more prudent fixed-value products), high assumptions on earnings as against a low interest rate environment, and insufficient liquidity of their trust funds. However, please allow me to make several important clarifications.

First, pre-need companies are not insurance companies. Our two industries have often been mistaken as the same, probably because both insurance and pre-need promote financial preparedness for future expenses, but we are not the same. We even had different regulators then — the SEC for pre-need and the Insurance Commission for insurance.

Second, insurance companies like ours are governed by a law (the Insurance Code) established long ago precisely to protect the best interests of the insuring public. The best proof we can offer you that the Insurance Code is living up to its purpose is that to date, not a single life insurance company here has experienced the same financial distress as those affected pre-need companies. In fact, as a result of the problems of the pre-need industry, a law was finally passed not too long ago giving greater protection to plan holders. 

Your fear is certainly well-understood, but we hope this clarification will enlighten you as well as restore your confidence in life insurance companies. Finally, we are 100 percent in agreement with you that people should first scrutinize the background, performance and financial capability of any institution before buying their products, especially one that will play a vital role in their families’ financial well-being.

JESUS ALFONSO G. HOFILEÑA, Insular Life Executive Vice President & Head of Sales & Marketing Group

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