I’m adulting. Should I get life insurance?

During these times, while you can still invest your hard-earned money in more tangible things like a condominium or car, you can also consider buying something that can help you protect your income, secure your future, and provide support to your dependents when something happens to you, like life insurance.  

If you want to start investing in yourself through life insurance but have no idea how, don’t fret— you’re in the right place. Here’s a  guide on life insurance in the Philippines.

Jump to sections:

What is life insurance?

What are the types of life insurance?

How much insurance should you get?

What are the benefits of life insurance?

When should you buy life insurance?

What type of insurance is already available to you?

Under the Universal Health Care Law (Republic Act No. 11223), all Filipinos are now automatically included into the National Health Insurance Program of the government. The law provides us with the full continuum of health services we may need. If you’re employed, most likely you would already have an HMO or health insurance.

Some of us may think that PhilHealth and HMO coverage are enough to cover for our protection needs. But both of these offer assistance only for health emergencies. They are different from life insurance.

Here are some of the things that you need to understand better about life insurance before you get one.

What is life insurance?

Life insurance is a type of insurance that pays out a sum of money after the death of the insured or a benefit on a specified date. Getting life insurance means entering a contract between the policy owner and the insurance company. This contract includes terms of the policy, the insurance coverage,  amount to be paid (or premiums) and mode of payment.

In short, you pay a fee, called premium, depending on your chosen mode of payment, which may be monthly, quarterly, semi-annual or annual, in exchange for the sum of all payments plus some benefits or potential return, depending on your chosen life insurance product, in the future. 

Life insurance can be a financial security measure that protects your loved ones’ future. This is where life insurance may be unattractive for some—paying for premiums for several years before your loved ones—not you—will get to receive the benefits.

On the other hand, if you have a life insurance coverage, it can help you secure your loved ones’ financial future in case of your untimely demise.

What are the types of life insurance?

In the Philippines, there are two major types of life insurance: traditional life and variable life. Traditional life insurance focuses primarily on guaranteed death and/or living benefits. On the other hand, variable life insurance is investment-linked, giving the policyholder a potential higher return on their living benefit while also having a death benefit. However, the values you get in variable life insurance are non-guaranteed because they can be affected by market performance. 

Among the types of life insurance, there are three other classifications:

• Term Life Insurance
  Term life insurance has a limited or fixed number of years of coverage which is actually the “term.” The death benefit will be paid to the beneficiary when the insured person passes away while the policy is active.
  Term life insurance is less expensive compared to other types of insurance. There is no potential earning because it doesn’t have a capital buildup component.
  When the term of the policy ends, so does the money that you need to pay to keep the policy active. Good news is that there are now term life insurance products that you can choose to be auto-renewed or converted to a permanent plan that can cover you for life.
• Whole Life Insurance
  Whole life insurance covers the insured until he/she passes away. It will pay for the policy’s coverage amount upon the insured's death, for as long as the policy is active.
  Payment schemes of whole life insurance products are usually not complicated because premiums are fixed but they are typically more expensive than term life insurance.
• Endowment
  Endowment life insurance products offer guaranteed living benefits on top of protection. These guaranteed living benefits can come in the form of periodic payouts or a lump sum amount when the policy matures. The death benefits of endowment life insurance products are provided to the beneficiaries at the end of the term.
  On costs, endowment life insurance products tend to have higher monthly or annual premiums. Premium payments are more expensive because endowment products pay out guaranteed living benefits while protecting you and your loved ones financially in case of death or sickness. 

Life insurance product offerings vary from one provider to another. Manulife Philippines, for instance, offers whole life (Seasons 100) and term life insurance (Yearly Renewable Term and React5) products. These products help you deal with the financial impact of various uncertainties while also serving as a vehicle towards reaching your financial goals.

How much life insurance should you get?

There are several factors to consider when computing for how much life insurance to get. You have to consider your financial needs, your income, how much savings and other investments you have now, among other things. But as a rule of thumb, the Philippine Life Insurance Association or PLIA suggests buying life insurance with coverage equal to 5 to 7 times your current annual gross income. 

What are the benefits of buying life insurance?

Life insurance offers you financial preparedness and peace of mind when the inevitable happens. Securing your loved ones’ future is priceless, and so is preparing for your retirement. These benefits can come in monetary forms like the following:

• Lump-sum payments that may help in your financial needs;
• Payouts, which are usually tax-free;
• Guaranteed fund value or living benefits for your traditional life insurance products or your variable fund value for investment-linked variable life insurance products, which you can use for your retirement fund or education fund or for paying health expenses, if you want to use it for this purpose; or

Here is a video of Mr. Pascual Carbero, President of the Philippine Insurers Club, explaining how we can benefit from investing in life.

When should you buy life insurance?

There is no one answer to this since it depends on where you are in your life’s journey. But it’s true that when it comes to life insurance, the earlier you start, the better.

The cost of getting a life insurance policy while you’re in your mid to late 20’s can be significantly different when you get insured later in life. This is because by this age, one would already have enough income to support current needs and a little extra to invest in future needs. At this age, premiums would also be lower compared to when you get insurance later in life. Just be reminded that when you buy insurance, you need to pay premiums on time because late payments can result to lapsation of the life insurance coverage and its benefits. 

We’re in the middle of the COVID-19 pandemic, is it safe to get life insurance?

Filipinos are increasingly becoming aware of the importance of life insurance. The Insurance Commission stated that market penetration reached 59.15% as of September 2019. This is despite the Philippine insurance industry being tested throughout the years. 2020 posed yet another challenge: the CoViD-19 pandemic.

In an interview with ABS-CBN News, PLIA President Benedicto Sison said that the Philippines’ life insurance companies have enough capital to cover death and hospitalization claims. The insurance industry is financially prepared to face the challenges brought by the coronavirus pandemic. It can serve and fulfill its obligations to its clients because of sufficient capitalization.

What’s next?

Now that you know a little bit more about life insurance, it’s time to think about what life insurance suits your financial needs. You can spend more time doing research online and thinking about this on your own. But you can make your every day better by going the more convenient route:

Talk to a financial adviser about your life insurance needs