Five life insurance types that match different Filipinos’ needs

Life is full of unpredictable events. In the most unfortunate of circumstances, is your family ready to live without you? Life insurance is one of the best ways to protect your family after your untimely passing. However, most Filipinos are hesitant about investing. Healthy young adults are likely to think of the short-term, and not about insurance.

So, it helps to actually understand the importance of investing. Here are the five types of life insurance that Filipino adults need to know, so they can determine which one suits them best.

Term Life Insurance

A term life insurance covers a limited number of years. If death occurs within the period before your policy expires, your beneficiary receives the benefit. The benefit depends on your insurance premiums.

But if the term life insurance ends and the policy remains untouched, you can renew your insurance for another limited term and stay covered until that term ends, or have the option to change your coverage from a limited term to a longer term, whole-life insurance, or terminate the policy.

Term insurance policy covers a few years, so premiums are more affordable than the whole-life insurance.

Term insurance is a good option for:

• Parents with young children
• Adults with dependents capable of earning income
• Business partners with new business ventures

Why Term Life Insurance?

Term life insurance is the best investment option for those who only need coverage for a specific amount of time. By the time their coverage ends, they believe that their beneficiaries would have become financially stable enough even after their passing.

The best group whose needs match this type of insurance are parents with young children. Let’s say that you are in your late-twenties and the parent of a newborn child. Should you pass away before your child can become a working adult, your savings and the income of whoever becomes your child’s guardian may not be enough to pay for your child’s future until they become adults.

But with term insurance, you’re protecting your child’s financial future in case you pass away before they can become independent and financially stable. Upon your demise, the death benefit can help your child’s guardian continue to provide for your child.

Whole Life Insurance

Whole life insurance is the traditional life insurance most people know: you’re covered permanently and your policy will not expire as long as you pay your insurance premiums. Aside from the death benefit, your beneficiary will also be entitled to cash set aside and accumulated over time.

Best for:

• Parents of children with special needs
• Family breadwinners
• Adults with dependents incapable of earning income
• Married couples with outstanding debt
• Business partners

Why Whole Life Insurance?

Although whole life insurance is more expensive than term life insurance, the former is more practical in the long run.

Let’s say that you’re 25 years old, healthy—not smoking or drinking excessive alcohol, and in a career that has relatively low-risk workplace hazards. Insurance premiums are determined by the likelihood of your mortality, based on your age lifestyle and other health habits.

Now, if you’re 50 years old, you may have developed certain health conditions due to age and lifestyle. If you chose a whole life insurance, your premium will still be the same as it was 25 years ago, making it relatively low. And you’re still covering dependents with a layer of financial security—in case you pass away—in the form of both death benefits and the money set aside to grow for your dependents.

But if you chose a 25-year term life insurance, your coverage ends there. If you want to keep protecting your family, you’ll have to renew your policy. However, your premium will now change: instead of the premium established in your prime at the age of 25, you’re now assessed for your premium based on your state at the age of 50. By then, factors like your age and different lifestyle may increase your premiums—and you and your dependents don’t get anything else out of it apart from the death benefit.

Endowment Insurance

Endowment insurance products offer savings and life insurance all in one go. It’s the best plan suited to those who want to save money for a large expense in the future. It is common for parents who want to save up for their children’s college funds, but it’s also an option for people saving up for expenses like home renovation, retirement funds, and other large expenses.

Best for:

• Parents who want to save up for their children’s education
• People saving for retirement
• People who want to save up for long-term goals

Why Endowment Insurance?

It’s not the most popular choice for savers since a portion of your premiums go to the cost of your insurance. But compared to other forms of savings, this provides all three: keeping your beneficiaries covered while still earning enough for the future.

Variable Unit-Linked Life Insurance

Also known as VULs, this is a combination of variable life insurance—think whole life insurance, but instead of a growing savings account, you choose to take a gamble on the market by investing in different assets such as bonds, equities, etc.

So VULs are a whole life insurance policy, but it offers both flexible premiums and the ability to invest in the market. Like most investments, there’s a risk in case the market drops. But if you’re willing to take a chance on the market and let you and your beneficiaries cash-out much more than just the death benefit, it’s a good investment option.

Best for:

• People interested in investing and buying life insurance
• Young adults who want to take advantage of their low insurance premiums

Why VUL Insurance?

The latest numbers per Statista show that as of 2018, the insurance penetration rate in the Philippines is at around 3% (world average as of 2019 is 7.23%), which can be attributed to a number of factors. Typically considered a liability, it’s not seen as a profitable investment compared to high-return investment vehicles like stocks, bonds, and mutual funds. But VULs can provide both coverage for their loved ones in case of a fatal event while also providing an opportunity to benefit from the market.

"Buy Term and Invest the Difference" (BTID) Insurance

Also known as BTID, it’s more of a strategy than a specific type of insurance. Earlier, we talked about how whole life insurance is better than term insurance if you’re thinking about long-term coverage to protect your family. Through BTID, you’re buying term life insurance instead of whole life insurance, because term life insurance premiums are more affordable, so you can use the money you saved to invest into other vehicles like mutual funds, stocks, and other investments to add to your portfolio.

Best for:

• Young professionals who want life insurance and profitable investments
• People who have dependents that can eventually find their own income

Why BTID Insurance?

BTID is a strategy that won’t work for everyone, so it’s important to weigh what it is you need out of your life insurance policy. For those with dependents who are unlikely to be independently financially stable after a typical term life insurance coverage, it’s not recommended that you use this strategy as a means to profit.

Let’s say that you invest in term life insurance for 25 years because you want your child to be financially secure in case of your death before they become working adults. Rather than buying whole life insurance, you may find that it’s more financially profitable for you to buy term life insurance and then use the difference in premiums to invest in other high-return investment vehicles.

For more information on life insurance options from AXA Philippines, you can visit https://metrobank.com.ph/protect-life