Most people often mistake Life Insurance for an investment but in reality, it’s actually an expense. The person who buys it (for himself) doesn’t actually benefit from it, hence why it’s an expense for that person rather than an investment.
Let’s dig into it deeper.
What is Life Insurance?
Life insurance is a financial product that provides a lump sum payment to your beneficiaries in the event of your death. It can help your loved ones cover expenses like funeral costs, outstanding debts, and ongoing living expenses.
So by that textbook definition, this means that you have to die first before anyone can benefit from it. And it’s definitely not you who’s going to gain from the insurance paid for, but rather your beneficiaries. So kelangan mong mamatay para mapakinabangan yan ng kamag-anak mo. It may sound harsh but that’s the layman’s terms for it.
Please note that this is different from Variable Universal Life (VUL) Insurance which is a combination of Investment + Life Insurance. We’ll have a separate discussion about VUL. And iba rin yung Health Insurance, though kung minsan kasi is rider sya ng Life Insurance kaya akala nila is another benefit but in reality binabayaran mo yun ng extra.
Who needs Life Insurance?
Though it’s an expense, Life Insurance is actually an important financial product for breadwinners. When a breadwinner dies, their loved ones are usually left with significant financial burdens like:
- funeral expenses
- outstanding debts
- lost income
So what Life insurance does is provide a financial cushion for these expenses and help the policyholder’s loved ones through a difficult time. In short, para hindi maghirap ng husto ang mga maiiwan mo or para iwanan mo sila ng ikabubuhay naman nila.
In addition, those who have serious health issues and are “near the grave” should consider getting Life Insurance. Though it still depends on the policy (so you better review them before signing), most Insurance companies have a 1-year contestability period. Meaning, if you survive the first year after signing the policy, whether the reason for your death is due to a critical illness that you acquired prior to getting Life Insurance or something else, your beneficiaries will still receive the benefits stipulated in the plan. This is regardless if you’re a breadwinner or not. Pwera na lang kung ayaw mong makinabang ang mga kamag-anak mo (in case di ka breadwinner) kaya di ka kukuha.
Who doesn’t need it?
- A person who doesn’t have dependents. Though as a courtesy, ensure that you have enough assets to cover your burial services should something happen to you. You can also get a St Peter plan or something similar. Kakahiya naman kung di ka man lang mag-iwan ng pambayad ng ataul mo.
- A person who has sufficient assets to cover their dependents’ financial needs may not need life insurance. Kung may kayamanan ka namang maiiwan na kaya nilang mamuhay ng marangal, pwedeng di mo na need kumuha ng Life Insurance. But then again, if you’re financial state is at this level, most likely barya lang sayo ang pagkuha ng Life Insurance policy.
Blogger’s Note
I personally don’t have a Life Insurance policy. My reasons for not getting one are:
- I don’t have any dependents
- I’m a healthy human being who hasn’t been confined to a hospital for any illnesses except for measles when I was a kid
Siguro kung one-time big-time pagbabayad ng Life Insurance or kahit 5-year payment term tapos insured ka na forever, I would not hesitate to get it. The problem is, you need to keep paying para covered ka. Because once you stop paying (or tapos na yung coverage ng payment mo), di ka na insured.
Since my focus right now is to grow wealth at the soonest possible time, I’d rather invest any extra amount that I can get in investments that will eventually give me more money. Don’t get me wrong. I’m not being inconsiderate of my immediate family because should something happen to me, all my assets will go to them.