The Importance of Insurance Protection

What is Insurance and why has it been there for the past century?

Wikipedia article defines insurance as a means of protection from financial loss. An insured person creates the wealth for his beneficiaries at the start of his policy.

In our multiple stages in life, we may be at the point where we are the person being depended upon by loved ones and we don’t have families of our yet. We may be the breadwinner of the family hence our parents or our siblings depend on us on the monetary and “father-figure” aspects. We drive the family and we think about how we can sustain their financial needs apart from our own. In short, we are responsible and accountable to what will happen to them. That’s huge responsibility.

While we can set aside a portion of our net income for the needs of the family monthly, there is this level of uncertainty about how long we will still stay alive in this planet. If we are breadwinners of our own family –  a retired father with meager pension, a mother who has been a housewife ever since,  young siblings with one sister having a 6-month old son, our favorite and only nephew – what may happen to them should the Lord take us away early? Is the money we saved in the bank be enough to cover their day to day needs? maybe, but until which month or year? A 6 x monthly expense will not be enough for them to sustain their monthly needs after the 6th month. What if our company doesn’t provide life insurance coverage? good if it does. But what if when we died after we have resigned a month earlier and our next employer doesn’t have that? Would we be willing to stick to that company whatever it takes including us being asked to over-work or be forced to leave without pay because the business is bad and they need people to stop working for the time being? We may have considered investing in stocks  or mutual funds or UITFs and that’s good. But would the invested money be guaranteed to be enough at the time we are suddenly taken out of the picture?

Insurance protection is really a form of risk management wherein our loved ones are not left out of the cold should anything happen to us. This will give time for any of our beneficiaries to find means to support on their own, if the protection is not enough.

Nowadays, a 32-year old can be diagnosed with stage 4 terminal lung cancer even if he does not smoke. We are in a ear where canned goods are becoming the source of multiple diseases that could kill us. The rise in petty crimes can cause our death either by us becoming a victim or just an unintended victim in a crossfire. Or simply be a victim of an unfortunate and fatal accident.

Life is full of uncertainties, and because of that, there must be that sense of urgency in us to find means of protecting the future of our family. We cannot allow to leave our family suffering if they depend on us a lot. And protecting them need not be very uncomfortable on us who buy that policy.

As I am a financial advisor from Pru Life UK, allow me to present an example of a protection plan that is geared to allow our beneficiaries not just the Sum Assured or the insurance amount they can get when the claim after we die but can also give them whatever the amount of invested money is in the Fund Value at the time of death. So by paying a monthly premium, and after insurance charges have been paid (normally after the 3rd year), the yearly premium is likewise the investment amount in a fund that could potentially grow by 10%. The growth is not guaranteed as it will depend on the fund where you elect to be the investment medium.

My example will be for a guy, 32 years of age. He is paying a monthly premium of 3,000 or 36,000 per year.

Nowadays, what is 3,000 for us? When we eat at a restaurant, do we spend 300-400? We take a cab that will bill us 150 for a short trip. We buy stuff that will cost about 1000. We may be watching movies per week or every other week.  If we total them, would it be near 3,000 already? Can we stop for a moment and reflect about how far a 3,000 can go about protecting our family? If we can spare 3,000 from our 8,000 pesos monthly savings, would it be a nice opportunity for our family to be potentially receiving 3M when we die?

Allow me to give an EXAMPLE:

Guy 1, 45, saves 3,000 in a bank monthly. Unfortunately he got disabled and eventually died  due to complications. If we compute his savings, he had save 468,000. For the sake of simplicity, his family received the full amount. But his family depended on him for the 30,000 monthly expense. Hence, the family will be able to use up the amount in about year and 3 months. Father, mother, or sibling(s) may not be able to find work that will give them 30,000 a month. So they will have to settle for 5,000 per month.

Guy 2, 45, was in that same accident, got fully disabled, and also eventually died. Guy 2, had a Pru Life UK product policy called PruLink Assurance Account Plus and he had been paying 3,000 month premium since age 32. His death was a total loss for the family. But because he had protected their future by creating that wealth at age 32, they were able to make a buffer while father, mother, or sibling(s) all tried to find ways to continue living after his loss. In fact, the buffer is really big that it didn’t make the life of finding other means of income difficult.

Since Guy 2 had a 3,000 monthly premium for PAA+ with Pru Life UK, he was able to prepare the following:

  1. When he got disabled, the insurance company advanced 1M due to his total disability. Hence, the 1M will help the family, which by now had to be frugal with expenses and has brought down monthly expense to 20,000, potentially 50 months or 4 years.  With a 1.5M coverage, a balance of .5M remained after the 1M was advanced.
  2. Since Guy 2 eventually died, the balance of .5M was also provided to his family.  This eventually terminated Guy 2’s policy.
  3. Since Guy 2 met an accident and his policy included a rider that will give 1M for death due to disability and/or accident, the family also received another 1M.
  4. Since Guy 2 has been paying for his policy since age 32, his fund value has grown that it reached 552,422.50. That too, the family received.

That’s insurance protection. While we never want to be taken away early, but we must protect our loved ones and their welfare on any eventuality.  That’s our last gift for them.

The family of Guy 2 received 1.5M + 1M + 552,422.50 potentially from the fund value at age 45 (assuming also this was the actual Fund Value at the time of death). This is based on a 10% projected growth. This is not guaranteed as the performance of the chosen fund will give the actual growth rate.

Had Guy 2 lived and reached the age of 65 before dying due to accident, his loved ones would have potentially received a death benefit total of: 6, 314,638.54

Likewise, since Guy 2 had been adding premiums of 3,000 from year 1 to 10 without missing a premium pay, Pru Life UK gave him a bonus of 10% of his yearly premium from year 11 to 20.  That’s 100% of yearly premium given for free by the insurance company by year 20.

For the reader, if you wish to know more how you can also protect your loved ones, write me a letter at pruactiveadvisor@gmail.com

I would be happy to assist you with planning and creating wealth for them from the time you buy a PAA+ policy with Pru Life UK.

Author: pruactiveadvisor

I am a Financial Advisor affiliated with PruLife UK, in the Philippines. I can help you with your Traditional insurance and VUL needs. But more than that, I am very willing to discuss with you your financial status and how we can find ways to improve it. I have been a strong advocate of financial literacy and financial wellness since 2010, sharing information related to achieving ones financial goals. If you want to set up a meeting to discuss your current financial status and needs, reach out to me thru pruactiveadvisor@gmail.com   Sincerely, Pru Active Financial Advisor

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