Life Insurance 101

What is Life Insurance?
Understanding the Basics & How It Works

“Are you ready to die today?”

That’s the creepiest question I recently heard from a friend and to be honest; I didn’t know what to say. As someone who loves hiking and traveling around the globe, I must say that I am more prone to accidents compared to those who don’t.

But what if I really die today? Am I ready? How about my family? Okay, maybe I’m scaring you too much so let’s take a step back and revise the question. What if I get sick today? Like a stage-3-lung-cancer-type-of-illness? Do I have the money to pay for my chemotherapy? How can I provide for my family while I am sick?

The sad reality is that my answer to all of these questions is a “NO.” What’s more saddening is that most Filipinos are on the same dilemma. Do you know what’s worse? It’s when they let ‘death’ happen without knowing that there is a way to get prepared.

Today is the day that we educate ourselves about financial freedom. Join me as I discuss to you the importance of having life insurance.

What is Life Insurance?

Life insuranceLife insurance is an agreement between two parties; the ‘insured’ and the ‘insurer’, where the insurer pays a specific amount of money to avail premiums that can be claimed upon illness, retirement, and/or death.

It’s like saving money in a bank but with EXTENSIVE benefits. How is that so? Well in a bank, you’ll earn up to 0.25% interest if you meet the minimum balance in your savings account. But if you die, your savings will still be the same amount plus the interest.

If you invest in life insurance, you can claim your savings PLUS its interest in your retirement. When the unexpected happens, and you die or get diagnosed with a critical illness, you will get a monetary benefit that can range from P500,000 or more, depending on your plan.

I’ll discuss another scenario later on so you’ll fully understand how life insurance can be the best thing to have while you’re young.

How Does Life Insurance Work?

Life insurance is your ticket to financial freedom and security. It works not only in death, but in planning your retirement and even your children’s education.

For now, let’s focus on a specific benefit by talking about two best friends and their journey to financial freedom.

juan vs pedroAt 25, Juan and Pedro realized that they are not getting any younger and wanted to save money. Both still want to hike or travel at least once a month so they decided to invest their remaining budget of P3,000 (each) after deducting their travel expenses.

After doing their own research, Juan decided to invest his money through life insurance while Pedro decided to deposit his on a savings account. Pedro thinks that his money is safer in a bank rather than giving it to a company he doesn’t trust.

6 months have passed and the unexpected happened. Juan fell from a cliff on their major hike and was dead, on the spot. Because he signed up for a life insurance, his family received P1,000,000 as an accidental death benefit. Juan’s loved ones were able to pay for the funeral expenses and the remaining money was used to start a small business so they can sustain for their needs.

Now here’s the question: If Pedro was the one who died, will he also get the same benefit as Juan? Will his P18,000 (P3,000 X 6 months) bank savings turn into P1,000,000?

What are The Benefits of Life Insurance?

Now you know the story of Juan and Pedro, let’s dive deeper into the benefits. Aside from the dead, the living has also advantages when it comes to life insurance. 🙂

1. Retirement Plan

old man and wifeHave you planned your retirement? If so, what’s your target retirement age? Do you want to live and enjoy the remaining years of your life after 60? Take advantage of an investment-linked plan which covers insurance protection and investment at the same time. This means that part of your money will grow while being insured.

2. Critical Illness Benefit

You can never be sure of your health. I know someone who lived a healthy lifestyle and was physically active but was diagnosed with lung cancer. Having an insurance when you are diagnosed with a critical illness will grant you a monetary benefit that you can use for your medication.

3. Educational Plan

Already insured and still interested in securing your children’s college education? You can send them to the best universities in the country if you get life insurance for your children as early as they are one year old. Another good thing about being a parent with life insurance is that your children’s future is automatically secured (aside from their education) if the unexpected happens.

4. Accidental Death Benefit

As a breadwinner, I’m sure you don’t want your loved ones to suffer financially when the time comes. Getting life insurance will secure your beneficiaries in getting a monetary benefit to move forward.

5. Income Protection

To sum it up, insurance will serve as your income protection and road to financial freedom. You can live a worry-free life knowing that you’ll have money to spend when you retire. Start a business or travel the world. It’s up to you. 🙂

How Much Does Life Insurance Cost?

life insurance computationLife insurance premiums or costs depend on your budget and the type of benefits you would like to avail.

In my case, my annual premium is P24,000 and that only covers accidental death and total disability.

Insurance rates also differ in gender and lifestyle. (1)

For example; a smoker will be charged a higher annual premium because he is more prone to illness.

Frequently Asked Questions

We have compiled the top questions most people ask about this important topic.

1. What is the purpose of life insurance?

The main purpose of having life insurance is for you to be prepared in case unexpected things happen, including death. It will also help you plan your financials such as receiving a monetary benefit when you retire.

2. When should you get life insurance?

The best time to invest and get an insurance policy is while you are young and healthy. People who are sick and dying may no longer be qualified to get a life insurance while older people will get a higher premium due to high risk of illness.

3. What can life insurance money be used for?

Insurance claims or insurance money can be used depending on your plan. May it be for educational funding, retirement, travel, new business venture and many more. It will be up to you.

4. What are the advantages and disadvantages of life insurance?

pros and consThe known advantages of life insurance are:

  • Peace of mind – knowing that your family is financially prepared for the worst
  • Financial security – your children’s education will be secured
  • Investment – having life insurance is considered an investment with huge benefits

For some, the disadvantages are:

  • Might look like an additional cost to your monthly expenses
  • You can’t ‘withdraw’ your investment as easy as withdrawing money from the ATM

5. Does life insurance get more expensive as you get older?

Yes. Life insurance premiums cost more as you get older because you become more prone to illness. Getting insured at a young age is recommended especially for those who are at their early 20’s.

6. Which life insurance is the best?

As an insurance policy holder, I trusted Sun Life because it has already proven its stability and performance in the local insurance market. Even SSS has invested one billion pesos to Sun Life to raise more funds. (2) The company also believes in the importance of educating Filipinos about financial freedom. And I’m proud to be a Licensed Sun Life Financial Advisor.

Our Final Thoughts on Life Insurance

Author at the mountain
Enjoying life to the fullest!

Now that you have learned the purpose of life insurance, its benefits, advantages, and more, you are now one step away from financial freedom! I would also like to thank you for taking the time to know more about this topic that some people avoid talking about. (It’s true!)

Before, I didn’t know anything about being insured and what will I get out from it. When I decided to consider it, that’s when I realized that I was missing an opportunity to help me and my family plan for our future.

Getting a life insurance policy sounds like an additional bill to pay but it’s so little compared to the rewards you will reap in the future. Are you going to wait for the time that you’ll be critically ill before you realize its importance?

If you don’t hesitate to insure real estate properties and cars, why not insure your own life?

Contact me at (0918) 651-8633 if you have further questions. 🙂

I'm a Licensed Financial Advisor who is dedicated in educating Filipinos about being financially secured. During free time, I enjoy spending time by hiking, traveling, or by simply hanging out in a local coffee shop with friends.

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