Can An OFW Apply For A Philippine Life Insurance While Abroad?

No.

Few weeks ago, I received an email from an OFW asking for assistance regarding an insurance policy signed abroad. She found out (just recently) that insurance application signed outside the Philippines is not valid.

So, I took action by referring her to an advisor of that company.

Clarissa Ramos, a financial advisor with a similar experience, have posted in Facebook the same, but with a detailed guideline on how she assisted the policyholder.

This could help you, dear OFWs, if you are in a similar situation.

Let me share you this post from Pinoy Insurance Talk.

https://www.facebook.com/lifeinsurancehubph/posts/1653226394909286

To every Filipino who signed their insurance applications and proposals abroad, this is an actual story for you.

A client asked for my help. He wants to know the status of his insurance policy. He learned from Pinoy Insurance Talk Facebook group that signing insurance applications and proposals abroad is prohibited and any insurance policy born out of such is void. Also, that when an insurance policy is void, his family may not be able to claim anything. He got anxious and thought:

1. What will happen if I die during the contestability period? We can never be sure nothing will happen.
2. How about after the 2-year contestability period? Will my family be able to claim this time?

He confronted his agent about it. His agent only offered excuses. He contemplated of inquiring about the matter himself, but his agent told him that he will fix it. Trusting his agent, he did not inquire. However, his agent never did. He decided to do something because he did not want to always be left wondering whether or not his family will be able to claim. He wanted to file a report.

I helped him by drafting his complaint which contained all the relevant facts he narrated to me. I told him all the evidence he needed to prepare to establish the facts we stated in the letter. The good thing about the evidence preparation was that he was able to provide everything I asked that we would possibly need. Finally, I taught him where to go to, who are the people he needed to talk to and how to inquire.

He arrived yesterday from abroad and went to the office of the Insurance Company today to air his concern. Here are the following things he learned:

1. Indeed, the insurance policy is VOID, not just voidable.

Void means that a contract is invalid and has no force or legal effect – it never existed in the first place. Voidable means that a contract is valid and has force or legal effect BUT can later on be declared as invalid.

Why is an insurance policy – the basis of which are insurance applications and proposals signed abroad – void?

Under Article 1409 of the Civil Code, one of the void and inexistent contracts is where it is expressly prohibited or declared void by law. Insurance agents and companies here in the Philippines are prohibited from selling insurance abroad because the license issued to them is good only within the Philippines. Thus, it follows that there cannot be an insurance policy born out from solicitations made by insurance agents and companies abroad.

2. Even if the years pass by, the company will NOT PAY the benefits.

Under Article 1410 of the Civil Code, the action or defence for the declaration of the non-existence of a contract does not prescribe. This means that the insurance company can claim that the contract is void at anytime, if indeed it is void. There is no time limit for the company to raise that. The contract being void, the company can refuse to pay the benefits under the premise that they have no obligation. Do note that in void contracts, the parties cannot be compelled to fulfil their obligations because the very source of those duties are inexistent.

Something to remember: The rules on contestability period only applies to valid and voidable insurance policies.
The Insurance Company told the client that it was a good thing he reported and that he had two options:

1. If he wanted to keep his policy, he can request for a letter of acceptance from Insurance Company which will be heard and decided by a Committee.
2. If he wants nothing to do with his policy anymore, he can request for a cancellation of the policy and refund of all the premiums he paid.

That being said, I encourage everyone to come forward and do what the client did. Do not let your family suffer in the future.

In relation to this issue, I have found this article from Rappler. Let us all be aware so we can really enjoy the peace of mind that we have bought.

You Are Young and Don’t Have Any Dependent: Why Should You Get Life Insurance?

Yes, perhaps this is you…

You are probably starting in your career, and at this stage, you already know that you have to take control of your finances (a proof is that you are actually reading this article).

Congratulations to that!

You’ve got your emergency funds covered, but now you’re confused. Will you go straight to investing, or will you get life insurance first?

It is very crucial to address this bugging question.

Considering you are young with nobody relying on your income but you, why would you ever need life insurance?

“I’ll just invest the money instead of buying life insurance!” This, perhaps, is the voice in your head.

Why Need Life Insurance, Anyway!?

life insurance for yuppies

First and the major reason is about taking responsibility of our own lives.

In most situations, our lives are often interconnected with one another. Especially for us Filipinos who take pride in our family-oriented outlook.

Our actions and inactions particularly about money could directly or indirectly affect our parents and/or our siblings, and sometimes, even our relatives’ lives.

Whenever a member of the family is in a dire need, everyone is usually there, offering moral and financial support. That’s how we love our families.

But that feeds a cycle of a never ending loop, leaving everyone struggling on their finances – while they themselves are financially challenge, they won’t think twice to provide financial support to any family member who badly needs it.

This cycle should stop.

Untimely death should not burden the families left behind. That burden will surely slow down their own journey to financial independence, well, unless you belong to the ultra rich families.

But most of us are on the middle. And nobody wants to be a burden to anybody, either dead or alive.

The second reason is about planning ahead. Since life insurance increase costs as we age, getting one while we are young (and able) is a practical reason.

Life insurance is one of those things in life that you buy but you don’t want to use. Those things that you can’t buy whenever you needed them the most.

Conclusions and Recommendations

As a yuppie, if you have already saved a good amount of money that would cover the costs of “untimely death”, then perhaps you really don’t need insurance.

How much do you need saved up? Well, this article could give you an overview of how much.

The truth is, most yuppies that enters the marketplace does not really have much – given it’s the stage in our lives wherein we are just starting to accumulate assets.

You may be able to afford sustaining your own personal needs, and perhaps consider yourself independent – living on your own income. But, when inevitable events comes up – sickness, loss of job, etc.., the tendency of asking help from parents and siblings aren’t that very far.

Emergency funds, life insurance, health insurance, and your investments would help you cover those inevitable events. Only by then wherein you can proudly say that you are really taking responsibility of your own life.

Why Invest in a Single Premium VUL (SPVUL) instead of Mutual Funds or UITF

You have at least P500,000.00 in your bank deposit account and are planning to invest it in an investment that would help you make your money work for you. You were brought to several options, and you have ended up choosing between a Single Premium VUL, a Mutual Fund, or a UITF.

Now, you’re confused.

First off, the listed options are all pooled funds managed by professionals called fund managers. In investing in either of the three, you will be asked whether you’ll want to invest your money in an Equity Fund, a Bond Fund, or a Balanced Fund.

They are the same in almost all aspects. Their difference lies on the structural aspect. Single Premium VULs are offered by insurance companies, thus, are regulated by the Insurance Commission (IC).

Unit Investment Trust Fund, popularly referred to as UITF, are offered by banks and managed by their trust department. The regulatory body is the Bangko Sentral ng Pilipinas (BSP).

Mutual Funds, on the other hand, are managed by Investment Companies and are regulated by the Securities and Exchange Commission (SEC).

I know, stating those differences doesn’t bring up any clarity in your decision making. Now, let’s talk about benefits.

mf vs. spvul

Benefits of investing in Single Premium VULs over Mutual Funds and UITF.

The truth is, there’s really not much difference between a mutual fund and UITF in terms of benefit. For discussion purposes we’ll just compare Mutual Funds and Single Premium VULs.

Allow me to use Sun Life’s Maxilink One as a sample for Single Premium VUL, and Sun Life’s Prosperity Fund for Mutual Fund.

Here’s the situation. You have P500,000.00 to invest in a 10 year time frame. You are inclined to investing in an Equity Fund, you’re just not quite sure whether to choose a Mutual Fund (or UITF) or a Single Premium VUL.

Now, you decided to look at the numbers.

Let’s assume that in both funds, the average annual rate of return is 10%. Both funds, Mutual Fund and Single Premium VUL, uses a backend fee system of 5%, diminishing by 1% yearly (If investment is redeemed in the first year, charge is 5%, if on second year, 4%, and so on and so forth. Redemption of investment after the 5th year no longer have a redemption charge.)

Investing in Mutual Funds

 
Year Fund Values
1 550,000
2 605,000
3 665,500
4 732,050
5 805,255
6 885,781
7 974,359
8 1,071,794
9 1,178,974
10 1,296,871

Projected fund value of the mutual fund investment after 10 years is P1,296,871. Mutual Funds are very flexible that you can withdraw your investment anytime without being bounded by holding period. However, there are sanctions for early redemption.

Investing in Single Premium VUL

 
Year Charges Fund Values
1 266 548,615
2 168 602,146
3 137 660,995
4 102 725,608
5 61 796,537
6 18 874,399
7 959,872
8 1,053,700
9 1,156,700
10 1,289,986

At year 10, the projected Fund Value for a Single Premium VUL is P1,289,986.00. The difference of P6,885.23 to the fund value of Mutual Fund is attributable to the insurance charges for the Single Premium VUL. Investment benefits are identical for Mutual Funds and Single Premium VUL.

Looking at the projected 10 year fund value, you might be concluding that it’s best to invest in mutual funds because it’s higher than Single Premium VUL by P6,885.23.

Benefits of a Single Premium VUL over Mutual Funds, UITF, Bank Deposits, and Real Estate Investments

It is an insurance product. Thus, the minuscule difference of P6,885.23 is really very immaterial compared to the benefits it could provide to the investor (or beneficiaries of investors).

I. Minimum Death Benefit. The death benefit for a Single Premium VUL is then higher of 125% of Single Premium or the Fund Value. In our illustration, it is the higher of P625,000 (P500,000 x 125%) or the current Fund Value of the investment.

This means that in the event a policyholder (investor of a Single Premium VUL) dies while the fund value of his investment is lower than P625,000, his beneficiaries will still receive the minimum death benefit of P625,000.

Say the fund value of the invested P500,000 at the time of death is P400,000 (market declined significantly), the beneficiaries will still be receiving the GUARANTEED minimum death benefit of P625,000 (as long as no withdrawal was made in the fund).

Or lets say the fund value at the time of death is P800,000 (market rises significantly), the beneficiaries will be receiving P800,000, which is higher compared to the minimum death benefit.

In case of a Mutual Fund or UITF, the people left behind will receive only the fund value, regardless if it is higher or lower the the amount invested.

II. Liquidity upon death. While all other assets (investments including Mutual Funds, Stocks, Cash Deposits, and Real Estate) will be frozen by BIR until the appropriate taxes are paid, investment in a Single Premium VUL are readily available to your loved ones. The reason behind this is that Single Premium VUL is still an insurance product.

If you have defined an irrevocable beneficiary, your investment becomes tax exempt (tax-free).

The Bottom Line and Final Recommendation

On a more holistic financial planning perspective, I am recommending a Single Premium VUL over investing in Mutual Funds and UITF. It is a great tool to use in planning your Estate while having the ability to enjoy your investments while the investor is still alive, contrary to other insurance products wherein the benefit focuses upon death, including a Regular Pay VUL in it’s infancy years.

The only barrier to entry in using a Single Pay VUL is its price point – you’ll be needing a much higher initial investment compared to a Mutual Fund wherein you could start with just P5,000.

Here is my recommendation. If you have the funds and are thinking to invest in a managed fund, then go for a Single Premium VUL. Period. (Well, unless perhaps you are already FULLY INSURED)

**You can request for a Single Premium VUL Quotation here for FREE!

Financial Literacy: Where Should You Start Your Journey?

Here’s the truth – we often realise the need to educate ourselves about money at different ages of our lives.

Some people realise it early in their lives, some at the middle of the road, and some due to the pressure of upcoming retirement.

With these diversities, how would we even know where to start our journey to financial literacy?

I. First, we have to understand what MONEY is.

It’s a tool, a commodity, that we use to exchange for products or services.

Money by itself is neither GOOD nor EVIL. Thus, the saying “Money is the root of evil” is a complete fallacy.

How we use it and what do we do with it is the one with morality. We either use it for good intentions or for the wrong reasons.

Firearms are used by soldiers to protect a nation. It’s also used by terrorist to spread terror. Firearms are neither good, nor bad by itself.

We use knives as a tool in cooking, to feed people. Some use it as a weapon on crimes. Knives are neither good, nor bad.

Money is a tool. Nothing more, nothing less.

II. The Goal is to have a plan.

We can look at money as grease to a machinery, and our lives as the systems to those machines.

The main goal is to keep the grease flowing (easing friction), to have sufficient grease flowing from one system to the next (Investing), while ensuring possible leaks are covered (Insurance).

In short, the goal is to look into our own lives and prepare for what’s ahead (Plan A), while looking outside and to those lives connected and dependent to us just in case life turns out different from what we have expected (Plan B).

There is no one-size-fit-all Financial Plan. That’s why it’s very important to assess ourselves – the things that we have, the things that we might have in the future, and the things that we may lose when we don’t reach the future.

III. We’ll eventually learn and look for instruments that we can use to address different areas of our lives.

Financial literacy is not just about investments, nor just about insurance, nor savings.

It’s a combination of all of these instruments in consideration to several factors of our lives – age, personality, dependents, financial resources, and more.

It’s about how to handle money as a tool, and make it work towards the attainment of what we want to happen in our lives – ensuring that they will happen, with or without us.

If you are just starting this journey, it’s true that there is still a long way ahead, with a lot of things to learn. And it will never end.

But as we go along this journey, we’ll eventually realise that it’s not really about the money. It’s really about getting it out of the way so we can focus on the things (people and relationships) that really matter.