Choosing the right life insurance for you (Part 3)
Answer: After discussing how much coverage you should have and talking about the different kinds of life insurance policies in parts 1 & 2 of this column, I will now close this series by discussing how you should choose your plan and provider.
Deciding on a type of plan should be consistent with your objective. If the only purpose of considering life insurance is protection, then a term policy is something you should consider. Further, if you just want to maximize insurance coverage and reduce cost, then a term policy is most prudent. Just make sure that you don’t mind paying premiums that will not be recovered unless a death claim is filed.
If you would like some savings to go with your insurance coverage at the same time, you may opt to get a permanent plan instead of a term policy. Some people would want some recovery of the premiums they are paying when the time comes they feel they don’t need any coverage anymore.
A traditional plan like a whole life insurance will have cash values that will accumulate over the years, typically with a guaranteed cash value and a nonguaranteed portion via dividends. Unfortunately, the returns of traditional insurance policies are very low, comparable to a time deposit rate. Accumulations in traditional plans are also on a long-term basis and will take you many years to break even.
A variable universal plan (or investment link), on the other hand, will provide better accumulation of funds as they are market-driven instruments. The downside of this product is that it does not offer any guarantees beyond death benefits. Still, it is expected to outperform traditional life insurance products over a long period of time, making it more popular nowadays.
Assess your need thoroughly—Would you want to combine your insurance coverage with savings and investment or would you want to do it separately? You can buy term and invest the difference—or you can buy a variable universal life policy that will do that for you.
If you want insurance coverage with guaranteed savings and are willing to accept low returns, then a traditional life policy is for you. If you want better returns but with volatility, then go for a variable universal life. If you just want the plain vanilla insurance, go with a term plan. There is no such thing as a ‘best’ life insurance product—it really depends on your need or affordability.
As to insurance companies, I’d recommend that you consider life insurance companies among the top 10 in the country because they are usually more stable and are highly reputable. I posted a ranking of the top life insurance companies of 2011 on my website— http://www.randelltiongson.com/2011-top-life-insurance-companies-my-musings/.
The Insurance Commission monitors the operations of all insurance companies and has strict standards, particularly on solvency. Most life insurance companies are well capitalized and it is comforting to know that no life insurance company in the Philippines has ever folded up. It might also be a good idea to ask around about experiences of others with regard to after-sales servicing and claims paying reputation of different insurers.
For me and many others, customer service is a very important criterion—especially since a life insurance coverage is long term in nature.
You may want to get proposals from three life insurance companies of the same product and look at the benefits they offer. I notice premiums of some companies are substantially higher than others so it will be a good idea to be thorough when you are reviewing. Compare benefits and riders, add on those that you need and remove those that you think are unnecessary. When you are considering a variable universal life policy, check out the management fees—some charges are much higher than others.
Finally, I urge you to also be selective in dealing with your insurance advisor. I will go with an advisor who knows his products thoroughly, can answer most of your inquiries, can conduct a good needs analysis and will put your interest first before his sale. Unfortunately, quite a few insurance advisors have issues like misrepresentation or, worse, nonremittance of premiums. It is important that you deal with a professional and it is easy to spot one by observing the way he conducts his business.
Whether you buy from an insurance agent or from a bank (via bancassurance), make sure you get a policy that you need, you can afford, from a company that is reputable and from an advisor that you trust. Tip: If you notice that the advisor is so much in a hurry to close a sale and is more concerned about meeting his sales quota than your welfare, you might want to look for another advisor.
My prayer is that more Filipinos will be like you. More Filipinos have to be covered considering the benefits of life insurance.
(Randell Tiongson is an advocate of Life & Personal Finance. He is a director of the Registered Financial Planner Philippines. To learn more about Personal Financial Planning, join the RFP Batch 29 program on Oct. 13-Dec. 1. For more details, e-mail [email protected] or visit www.rfp.ph.)
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