Why Life Insurance is an Indispensable Part of Financial Planning

We all (most of us) know the mechanics of how life insurance works. You buy it, when you die, you get money.

Simple, isn’t it?

But what’s not a common knowledge is the vast uses of Life Insurance as a great tool of not only planning our own finances, but also, in protecting whatever we had gained over our lifetime.

Let’s talk about them.

Why Insurance is an Indespensible tool

1) Taking responsibility of one’s own life.

I’ve read blogs discouraging single yuppies in getting life insurance, which I think (on my personal opinion) is quite careless and irresponsible.

For one, we should stop the idea that somebody will carry the burden during an untimely death. This thought will keep this country poor.

As much as we can, let’s take responsibility on our needs when we are alive, and try not to pass the burden when we die.

How much does a yuppy who supports nobody need to stack in his life insurance? One good reference point is this article of Pesos and Sense about the cost of dying in the Philippines.

2) Ensuring that life will continue for those left behind.

Head of the family, parents supporting a family, and persons where other people (young or old) depends on. These people needs more life insurance than just by taking responsibility of their own life.

This is mostly referred to as Income Replacement.

Income, what?!?

Alright, here’s the main concept. The moment a breadwinner of the family faces death, it’s not only a loss of the physical body, it’s also a loss of income generated by that individual.

It’s computed by several means. One way is to divide the annual income provided by the breadwinner by an acceptable investment rate of return.

Let’s say the breadwinner is giving P500,000.00 to the family, and an acceptable investment rate of return is 5%.

That will be P500,000.00 divided by 5%, which will result to P10,000,000.00.

That will be the ideal insurance coverage for income replacement, which, once received by the beneficiaries, will be invested in an investment that would yield the acceptable investment rate of return (5%).

At the end of the day, what’s important is that when we say we love our family, death should not end that love.

3) Ensuring debts will not be inherited.

Ever wonder why life insurance is required when getting a Housing Loan?

Yes, creditors use Life Insurance as a sort of a collateral to ensure that debts will be paid, dead or alive.

This is referred to as Mortgage Redemption Insurance (MRI).

4) Keeping your asset, well, yours (or to your heirs)

I’ve heard an interesting statement from somewhere, just can’t remember where.

It says, “If you are purchasing an asset, especially real estate, you should stack up an additional life insurance coverage equivalent to 20% of the Market Value of that asset. Remember that everytime you purchase an asset, you are giving a burden to your heirs/family, 20% of the market value as an estate tax when you die.”

That brings up the topic of estate taxes, which should be seriously considered when an individual is slowly building up his wealth.

Life insurance ensures that cash will be readily available to beneficiaries to pay for the corresponding estate taxes.

Any case, who would want that the fruit of their lifetime hardwork falls only to the hands of the government, auctioned in a very steep discount, just to pay for the taxes?

No one.

5) Leaving a legacy

Perhaps not the best use for Life Insurance, but nevertheless, some people use life insurance as a way to leave instant wealth to their family.

Well, for a fraction of a cost, life insurance proceeds could leave millions to the heirs.

Conclusion

Life insurance is indeed an indispensable tool in our financial planning, and should not be taken lightly. It is very useful in various stages of our lives.

To learn about different life insurance options, it’s best to talk to an insurance/financial advisor. You may request a FREE quote here, our network of Financial Advisors will be keeping in touch with you.

The Conclusion of the BTID and VUL Debate

… I hope.

I was revisiting an old article from my other blog at MutualFundPH.com regarding the arguments I have made about this never ending debate of comparing VUL and BTID.

The fact that the director of the Registered Financial Planners (RFP), Mr. Randell Tiongson, has shared this article and noted it as an interesting gave me confidence that the argument has some merits on it.

And some of my colleagues has been using the same as well. Thank you 🙂

The topic resurfaced [to me] because of the conversations I had with a client yesterday, and the new articles that are coming out from different bloggers lately.

The client is aware of this BTID & VUL debate and was clearly able to make a stand based on the information he got from the web – that he’ll shun away VUL.

We really got hook into the conversation and noticed that we’ve been talking for about 4 hours. He ended up asking proposals for Term Insurance and VUL as well.

Driving towards my next appointment, my mind is running on a few realisation. This is what I wanted to share in this article.

1) Different strokes with different folks

We are different people, obviously.

We have the different diets, we have different hobbies, different forms of exercise, different things we enjoy and life, and so on and so forth…

But nobody wants to be different, in one way or another. That’s why we people tend to group ourselves based on several similarities we might have. And then have a collective opinion [somehow] on some topics…

Something wrong with that? Nothing. That’s human nature.

Some would prefer boxing over karate, some would go for football rather than basketball, and some would invest in forex and get bored in the stock market.

Even stock market investors argue on which is better, fundamentals or technicals.

The same way, some people will choose BTID over VUL, or vice versa…

This leads to my realisation no. 2.

2) We are not meant to be 100% Investment-Savvy Population

We enjoy the market – the ups and downs, the highs and lows. And surely we KNOW what to do during those times (have to separate knowledge and action in this sentence).

But not everyone of us will choose to devote their time on managing their money and learning about investments. Some of us will choose to devote their time on their profession, their vocations, or their calling in life.

Some would prefer taking the time for the betterment of their career, of their personal lives, of their purpose in life…

Some are too busy protecting the country with crimes, some are busy drafting new laws (I don’t know why I included this here), and some are too busy saving lives in the hospital.

At one certain point, we should learn how to stop imposing our personal expectations on the lives of other people (note to self, guilty as charged).

This is the reason why some invest in Forex, some on Stocks, some on mutual funds/UITF, some on VULs, some on their own businesses, some on Networking, and some on their careers as employees.

3) Personal Finance is not 100% logic.

Brian Tracey will often say in his videos, “We are 100% emotional. When we say we are making logical decisions, it just means that we are putting more emotions on that decision compared to any other decisions.”

When I was still a blogger who often find resource materials solely on texts, videos and audios researched on the internet, I must admit that I don’t have the best idea about VUL. I’m a logical person as I’ll always say.

But on the field, talking to hundreds of people individually, I’ve realise that reality is a vast ocean of differences and outlook. That one size will never fit everyone.

That forex is not the best, nor stock market, nor mutual funds, nor real estate, nor VUL and BTID.

They are all good (just in the middle). Best on the right circumstance, and worst on the wrong situation.

People will often make decisions based on emotions – emotions that are often connected on how people behave.

Conclusion and Final Thought

… I should end because I might bore you to death.

Here’s my point.

There will be no end in this debate, like fundamental analysis and technical analysis. But, you can always use them both.

To investors (myself included), we should try to keep an open mind on all options. Whether that be based on instrument – forex, stocks, or managed funds – or implementation strategies, like VUL or BTID.

Opening our mind does not necessarily mean that we have to accept the other person’s argument. It just mean that we are allowing that idea to come in our mind freely so we can process them based on our personal circumstances.

To Financial Advisors (myself included), we should continue expanding our knowledge so that our clients could gain confidence on whatever recommendation we might have to give.

I am inclined to believe that the best personal finance strategy should integrate well with our personality and behaviour. At the end of the day, our behaviour will last longer than in any interest we might have today.

Here’s Why Financial Advisors Should Market Online

The traditional approach of prospecting (in general in most industries) starts with the Natural Market, then crawls to the referrals. Some do it on cold markets.

These prospects have one thing in common. For all of them, we don’t know if they are already on the mindset of taking initiative to their finances or not.

Convincing them drags the Sales Process.

What if there’s a way to find those people who are actively taking initiative to their protection and investing needs, and all they need is a bit of guidance?

That’s how I built my Financial Advisory business. I never ran out of prospects to call and meet, but I ran out of time to do appointments.

Building An Unlimited Source of Prospects Through Internet Marketing

…and not just any prospect but an unlimited source of prospects who are looking for investments and insurance.

Online Marketing

These are marketing initiatives done online through several platforms like websites, social media, emails, sms, videos, podcasts, and more.

Advantages of Prospecting Through Internet Marketing

1. Reliability. A successful internet marketing campaign provides a reliable source of prospects. I never really bothered asking for referrals, unless my clients excitedly give their friends names to me because they have established their trust on me (which is another topic to talk about).

2. Profitability. Needless to say, investments on internet marketing, if done correctly, pays very well. Remember, the prospects you have gathered are already interested, which means there’s a higher probability of closing them.

3. Sustainability. One of the most crucial part of business is to establish sustainability – the ability to maintain profitability for a long period of time.

4. Never chase a client ever again. One of the most frustrating part of having a very limited prospect base is that Financial Advisors will end up chasing a client to close, which compromise the self-esteem of the advisor. The worst part here is the more you chase your client, the more they’ll run away.

5. You’re at a psychological advantage. Since your prospects are the one reaching out to you, you’ll be able to set appointments with ease.

With the unlimited source of prospects, you can proudly say “Mission before Commission”.

There are lots of great benefits if you learn to market yourself online, and make yourself an authority of a particular niche.

All you have to do is to invest time, effort, and money to setup everything.