The Ultimate Guide in Getting Life Insurance in the Philippines

We already know that Life Insurance should always be part of your personal finance strategy, everybody is talking about it, and all personal finance gurus are recommending it.

However, how should you start your journey in getting one?

Let me guide you through the things you should do, step-by-step.

understand what you need

Before anything else, there are few things you need to ask yourself to ensure that you will get what you need.

Have an inventory of what you have.

To have a better understanding on what you need, it is best to have an inventory of all assets and liabilities that you have.

These inventory should include the following:

  • Cash In Bank (all banks including payroll accounts)
  • Real Estate properties (indicate a market value)
  • Insurance Policies
  • Investments (Stocks, Mutual Funds, Businesses, etc…)
  • Liabilities (bank loans, credit card debts, etc…)

Be honest to yourself. These information will help you understand where you are financially. As you will notice, you’ll be creating a personal Balance Sheet.

Understand your cash flows – your income and your expenses.

First step is to list all your income sources, no matter how small. The purpose is to have the most accurate understanding of how much money is coming in.

Next is to classify your expenses. Separate fixed and variable expenses.

Fixed? Variable?

Fixed Expenses are those expenses that you can no longer decrease, well, because they are fixed. Example of these expenses are your monthly rent, car amortisation, postpaid plans, cable tv bills, etc…

On the other hand, variable expenses are those expenses that you have control. These are the expenses that you may increase or decrease . Example of these expenses are your allotment for food, transportation, excess of your postpaid plans, etc…

Identifying your variable expenses will allow you to understand how much you can adjust and bring into savings.

Identify how much you can set aside on your monthly budget.

Upon analysing your cash flows, identify how much the maximum amount you can save on your monthly budget.

If you are happy on your current cash flows, that’s good.

If you wish to minimise further your variable expenses, then check how much further you can save.

At this stage, you should already know how much you can set aside.

List down your financial goals

Money is just a means to an end, a tool that we use to fund some life’s needs, wants, and experiences. That’s why it’s very important to identify what we are really trying to accomplish so that we’ll know how much we are targeting, and what we can do to ensure we meet those goals.

In identifying financial goals, it’s best to classify their term – either short term, medium term, or long term, and find balance in all of it. You may use the following as a guide:

  • if the goal is targeted in 5 years or below, classify them as short term
  • if the goal is targeted in 6 to 10 years, classify them as medium term.
  • for goals that are targeted in more than 10 years, classify them as long term.

In this goal setting process, always allot something for your retirement, and if you have children, an education fund for them.

Identify how much life insurance coverage you need

It’s very important to identify how much coverage you need to ensure that you won’t be purchasing more than what you need.

For a basic computation, you may get your annual expenses and multiply that by 10. What comes up is your ideal life insurance coverage which you should be trying to meet.

If you currently have debts, add that, and subtract any existing life insurance coverage you may have.

Allot a specific budget for each goal that you have

Prepare an initial budget on how much you’ll be allotting for a specific goal to ensure that you have something set aside for each of the financial goals you want to achieve.

select life insurance company

Now that you are done identifying where you are financially and the resources that you have to plan for the future, it’s time to check out the life insurance company/s that you may want to transact with.

One way to do it is to visit the website of the Insurance Commission and get a list of legitimate Life Insurance Companies here in the Philippines.

For easier and more reliable reference, just select from the top companies.

  • Sun Life Financial
  • Manulife
  • Insular Life
  • Pru Life UK
  • Philam Life
  • Axa Life

You can never go wrong with either of these companies.

Look for a Financial Advisor

To be able to transact with the Life Insurance Company that you have chosen, you need to find an Insurance Advisor/Financial Advisor/Insurance Agent.

You may know a friend, a relative, or a family member who is an advisor. If not, you may send us a Request for a Life Insurance Quote and we’ll send a Financial Advisor within your area. 

The job of an Insurance Advisor is to analyse your current financial situation and your goals and match financial products that could help you achieve your financial goals.

The question is, what should you be looking for in an Insurance Advisor?

Here are some characteristics that you should consider your Insurance Advisor should have.

Competence

The main task of a financial advisor is to understand your unique personal circumstances and develop a program that will help you achieve your financial goals.

Competence pertains to knowledge about personal finance as a whole and knowledge on the products they represent.

If possible, look for an advisor who distributes both Life Insurance and Mutual Fund products to provide you more options – but not really a deal-breaker.

Visibility and accessibility

An insurance advisor will become your representative in the company that you chose. It is best that they are always accessible to address your concerns – either personally, or through their staffs.

Although customer services of the insurance company that you may choose are always available to help, it’s easiest to talk to the advisor who helped you with your policy (or their staffs) to speed up in addressing your concerns.

Trustworthiness

This goes without saying.

Since this is a conversation about money, it’s mandatory that you trust the people you transact with.

Just ensure that every transaction with a financial advisor is supported by provisional receipts issued by their respective companies.

BONUS Consideration

Find an advisor who is trying to share their knowledge and expertise through their own websites or other platforms. More often than not, these advisors are committed to bringing themselves to the public for visibility, accessibility, and exhibition of their competence.

These advisors are keeping a reputation by being a public image, thus could be very trustworthy (not a guarantee though).

what to discuss with a financial advisor

As I have mentioned earlier, the role of an insurance advisor is to identify where you are currently in your finances, understand what are your current resources to help you move forward with your financial goals, and develop an actionable program that will suit your personal circumstances (preference, budget, behaviour, etc…)

The job of an insurance advisor is to keep asking. Here are some questions he/she will ask during your meeting.

  • Do you have any existing life insurance policies?
  • Do you have any investments? (paper assets, real estate, businesses)
  • Do you have children? How old?
  • How much is your monthly income? Monthly expenses? Monthly savings?
  • How are you managing your finances?
  • What the other assets you may have? Any liabilities?

As you will notice, the answers to these questions are present in your personal Balance Sheet and Income Statement.

You may answer these questions, or you may not. It’s up to you.

The ideal scenario is that you already have computed what you need (kindly refer to your computations in section 2), and how much you can shell out monthly, quarterly, semi-annually or annually, for the said policy.

You can just send these information to your insurance advisor so he/she can create a program that will fit your budget and preference.

For better understanding and in order for you to explore your options, it is best to meet an insurance advisor personally.

Choosing the Best Proposal

As I have mentioned earlier, the role of an Insurance Advisor is to understand your money preference and your needs, then create an insurance program around it. We refer to these insurance programs as Life Insurance Proposals or Life Insurance Quotes.

During the course of your discussions with the insurance advisor, you may end up having several proposals on hand that could be overwhelming to review.

Now that’s a challenge. Which one will you pick?

Here’s the general rule: choose the policy that will meet your objectives.

People choose different insurance programs based on their unique individual preference. There is no exact identifier on which is best to choose, but you may just take note of the following proposals that may be given to you:

Term Insurance (most inexpensive but no savings/cash values)

This type of insurance is like a car insurance – you’ll pay for it as long as you want it. It will not accumulate savings or fund values.

Good thing about Term Insurance is that it provides the highest life insurance coverage for the most inexpensive rate.

For some people, what they don’t like about term insurance is that it’s like spending for something without any expectation that they can get something in return.

Endowment Insurance (Life Insurance plus savings but limited duration)

Aside from the basic life insurance, Endowment Insurance provides a savings component that gives the policyholder a specified amount after a specified year – say you’ll be receiving P50,000 starting the 10th year upto the 20th year.

You’ll also be entitled to yearly dividends.

This proposal is more pricey than term insurance and offers a very limited life insurance coverage period, usually 20 years. Unlike the first proposal though, you’ll be receiving a lump sum of money at the end of the term, usually higher than what you will be paying for the whole policy.

Whole Life Insurance (Life Insurance with Savings, for life)

Very similar to Endowment Insurance, but this insurance policy last for a lifetime, well at age 100.

It’s a bit pricey, same as endowment, but over time, you’ll get what you have invested, slowly.

Variable Universal Life Insurance (Life Insurance with Investment on stocks and bonds)

This life insurance proposal is a combination of life insurance and mutual funds. I have written great details about this type of life insurance here.

Choosing the Best Proposal (2)

Once you have already decided which proposal to pick, you may start the application process with your insurance advisor.

Here’s how it will all go:

Fill up the application forms.

Usually, the only requirement that will be asked from you is the initial payment, and a copy of one valid government ID. Be sure to have those ready.

For payments, there are usually different mode of payment available – monthly, quarterly, semi-annual, and annually.

Be sure you get a provisional receipt from your insurance advisor.

Also, you’ll be issued a Certificate of Temporary Life Insurance that signifies that your life insurance is temporary effective until the policy is approved. This just means that even if your insurance application is still for processing, you’re already insured, subject to restrictions set individually by each insurance company.

Reminders

Ensure that you declare everything that needs to be declared – medical conditions, history, smoking habits, etc…

Failure to declare these things might cause headaches in the future for your beneficiaries. You may refer to the Two-Year Contestability Clause.

Also, if you’re an OFW, ensure that you are signing the documents within the Philippines. Signing application documents outside the Philippines might cause you troubles in the future.

The Insurance Advisor submits your application to the insurance company’s Customer Centres

From the point of submission to point of approval of your insurance application, it will take approximately 2 to 3 weeks to gain approval, depending on the life insurance company.

In between, there could be additional requirements to be asked by the approving departments of the insurance company (aka underwriters). You might also be asked to undergo Medical Exams.

Don’t worry about anything. Any subsequent procedures will cost you nothing. Some people take advantage of these things to check where their physical health.

Once your application has been approved, you will be issued a policy contract.

Investing In Life Insurance in the Philippines

Understanding Term Insurance and Variable Universal Life (VUL) Insurance

We all know that life insurance is an indispensable tool in planning our finances, you’re done with that.

One problem though, as you begin checking out the life insurance that you’ll be getting, you’re starting to get overwhelmed on the many choices that you have out there – Term Insurance, Variable Universal Life, Whole-life, and Endowment.

The question is, which one?

Confused? Let’s talk about each one of them, starting with the two types.

Two Types of Life Insurance

1. Traditional Life Insurance

Life Insurance has been a part of financial planning for several centuries, where the first policies were taken out in the early 18th Century. It had evolved so much back then.

Traditional Life Insurance are the type of insurance where our parents and grand parents are familiar with (they are, well, traditional). Kinds of Life Insurance here in the Philippines that fall in this classification are the following:

  • Term Life Insurance
  • Endowment Life Insurance
  • Whole-Life Insurance

These types of insurance may generate cash values and/or provide dividends.

2. Variable Universal Life Insurance

The evolution of life insurance has lead to the creation of Variable Universal Life Insurance, popularly referred to as VUL.

Since the introduction of VUL to the market, its acceptance lead it to become the best-selling Life Insurance policy during the past few years – taking 80% to 90% of life insurance policies sold.

VULs are popular for combining the protection brought by Life Insurance and the ability to grow your money through investments through Managed Funds

Confused?

Let’s dig deeper on two types of policies – Term Life Insurance and Variable Universal Life Insurance.

Understanding VUL & Term Life

Term Life Insurance

Plain vanilla Life Insurance – no frills, no complexities, just life insurance, period.

Term Life is the simplest type of Traditional Life Insurance, or in all types of Life Insurance in general. It does not earn dividends, no cash values accumulated, nothing – just life insurance, plain and simple.

The best feature of a Term Life Insurance is it’s inexpensive compared to other types of Life Insurance. It could provide the highest Life Insurance Coverage for a very low budget.

To provide you a perspective on how much it is, a Term Life Insurance for a 30-yr old non-smoker male, a P2 Million Pesos Coverage will cost around P9,300 per year (sample proposal from Sun Life’s SUN Safer Life).

However, since there are no cash values and/or dividends accumulated for this life insurance policy, you will be paying for it all throughout the lifetime of the policy while it’s enforced (active).

Also, premium rates increase as the years progress, how often depends on the design of the policy by different life insurance companies. It could increase every year, every 3 years, or in the case of the sampled proposal above for Sun Life’s SUN Safer Life, every 5 years.

Is Term Insurance for you?

Here are some profiles that fits perfectly the policyholders of Term Life Insurance:

  • You have a low budget and a very high need of considerably high life insurance coverage
  • You have short term needs of high life insurance coverage, e.g. used as Mortgage Redemption Insurance (MRI) for housing loans, or to protect your children to ensure whatever happens, they’ll be able to study, etc…
  • You opt to manage investments and savings separately from insurance – implementing the Buy Term Invest the Difference Strategy, often referred to as BTID

Variable Universal Life Insurance

Popularly known as VUL.

In the simplest context, a VUL is a combination of Life Insurance and Investments on managed funds, e.g. Mutual Funds (if you are not familiar on how managed funds work, you may check out the video that I have created here).

The Life Insurance portion is actually a term insurance, identical to what have discussed above.

Once we understand the separate concepts of Term Insurance and Managed Funds, understanding VUL is a breeze.

Two Types of VUL

Should you find yourself in a position wherein you’re inclined in getting a VUL, there’s one thing you should know – there are two types of them: Regular Pay VUL and Single Pay VUL.

Single Pay VUL (SPVUL)

As its name implies, this type of VUL requires a one-time pay investment – usually around P50,000 and up, depending on the insurance provider.

Single Pay VUL focuses on investment with a very minimal life insurance component. It is an insurance product in form, but really, an investment in substance.

I have dealt a very detailed explanation about SPVUL on an earlier blog post. You may check it out here.

Regular Pay VUL

If SPVUL focuses on investment, Regular Pay VUL “generally” focus on Life Insurance.

I used the word “generally” because it’s still flexible enough to focus on investment or life insurance, depending on how it is designed.

For a comparative analysis, let me show you some differences of Term Insurance and Regular Pay VUL using the same profile that I have used in the Term Insurance example above.

Term VUL
Annual Premium at age 30 9,300.00 44,160.00
Annual Premium at age 60 21,650.00 44,160.00
Estimated Fund Value at age 60 @ 10% Compounded Rate of Return 5,863,942.00

Please note though that this is not an apples-to-apples comparison. I showed this table so I can illustrate the differences between the two. For it to be comparable, you need to compare Regular Pay VUL vs. the BTID strategy. For more info, check it out here.

In the table, you may be able to spot some differences:

  • Term Insurance is way cheaper than Regular Pay VUL
  • Annual Premium for term insurance increase. Regular Pay VUL’s does not.
  • Regular Pay VUL accumulates fund values (cash values) which can be withdrawn anytime. Term Insurance does not.

Again, I don’t intend to show which is better. The purpose is to show the differences.

Is Regular Pay VUL for you?

Here are some profiles that fits perfectly the policyholders of Regular Pay VUL:

  • You opt to get “something back” to Life Insurance policies that you are paying.
  • You don’t have a considerable budget to go for BTID, but you want to target both Life Insurance and Investment at the same time.
  • You are diversifying your strategies – availing VUL while doing BTID.
  • You prefer monitoring less accounts and combining both Life Insurance and Investments makes it more manageable for you.

Which one is better?

It depends on a lot of factors.

The better choice will always be the one that meet your objectives. Thus, in choosing, it’s best to describe first to your Financial Advisor what you wish to accomplish – that’s the job of the advisor, to find a solution that will meet the requirements of the goals you want to achieve.

Should you wish to receive a FREE QUOTE/PROPOSAL, you may request here. A Financial Advisor will keep in touch with you.