By Leony R. Garcia
HAVE you bought yourself an insurance policy? Or was it sold to you?
For many people, their first experience with insurance is when a friend or acquaintance gets an insurance license and unwittingly traps them along with all of their other friends to buy a policy underwritten by his or her company.
No matter how you have acquired your insurance—rest assured that it is something that you truly need, not merely an inconvenience shoved under your nose by a salesman or by your friend.
However, not too many shall agree that insurance is an indispensable and fundamental to a sound financial plan. Consider this: despite the fact that the Philippines is one of the world’s most disaster-prone areas, insurance coverage is still very low in the country. It is also a country where personal savings are low and where many depend solely on monthly income to cover their regular expenses. That’s why in the event of the unexpected, many are left helpless and miserable.
In more developed nations, insurance is a necessity in financial risk management. What many Filipinos do not realize is that the pre-need sector is vital not only to individual’s welfare but to the country’s financial sector, as well.
Life-insurance penetration reported at 0.87 of GDP in 2010 makes us the second lowest in Asia and among the lowest in the world in terms of insurance coverage. Perhaps, this figure shows that its value is less appreciated in the Philippines than the rest of the world.
Pre-need plans are contracts that provide for future services or payment of money at the time of actual need. They are education, pension and memorial plans.
In December 2009 then-President Gloria Macapagal-Arroyo signed into law Republic Act (RA) 9829, or the Pre-Need Code of the Philippines, which laid down the guidelines for operations of pre-need companies and sanctions on violators.
The law also designated the Insurance Commission (IC) as the industry’s main regulator, in lieu of the Securities and Exchange Commission (SEC).
RA 9829 raised hopes about the recovery of the pre-need industry, which had been plagued by the decline in sales of pre-need firms and the eventual collapse of the College Assurance Plan after the 1997 East Asian financial crisis.
The IC listed 16 licensed pre-need companies as of August 2015, compared with the 92 registered with the SEC when it assumed supervision of the industry in 1978.
Philippine Federation of Pre-Need Plan Cos. Inc.
The pre-need plan companies in the Philippines banded together 15 years ago to form the Philippine Federation of Pre-Need Plan Cos. Inc. (PFPPCI) to closely monitor its constituents for their compliance with good corporate governance principles. It is believed that the growth of the industry can still be further bolstered not only by its adherence to pertinent laws and regulations, but also by sound corporate governance principles observed by the individual firm level, for both big and small companies.
The IC’s requirement for all pre-need companies to become a member of the pre-need federation was most welcomed by the PFPPCI.
Insurance Commissioner Emmanuel F. Dooc issued on June 2015 Circular Letter 2015-27 ordering the mandatory membership of all pre-need companies in the Pre-Need Federation to promote cooperation and discipline among all pre-need companies.
The mandatory membership shall be a requirement for the issuance or renewal of a Certificate of Authority to do business in the pre-need industry which is issued by the IC.
‘Pre-need: Gabay sa Panatag Na Buhay’
Yearly, PFPPCI observes the pre-need consciousness week in a bid to educate the public on the importance of pre-need insurance through various activities like fora and community outreach to indigent communities. Meanwhile, bonding moments among the group is included such as sport tournaments.
This year’s weeklong celebration, on February 1 to 7, is themed “Pre-need: Gabay sa Panatag Na Buhay.” Starting off the fun week is a thanksgiving mass on February 1 at Greenbelt chapel, followed by a bowling tournament the following day at SM Mall of Asia. Then on February 4, the federation promotes the pre-need concept of preparation and planning as a way to a better future through a Pre-Need Forum at Shangri-La Makati Hotel. Then February 5 is dedicated to an outreach activity for the benefit of the Department of Social Welfare and Development (DSWD) Reception and Study Center for Children (RSCC) Unit-Quezon City.
The best time to buy your pre-need plans is now
Pre-need companies help realize a Filipino parent’s deepest aspirations—education for their children, health care in times of illness, pension upon retirement, memorial service upon one’s demise. Pre-need plans, for example, have become a family’s popular option for ensuring the education of their children, especially after the enactment of the Education Act in 1982, which pried the doors open for sharp tuition increases.
There’s really no reason for the public to fear pre-need plans according to Elmer M. Lorica, president of Eternal Plans Inc. and currently vice president and treasurer of PFPPCI and chairman for this year’s pre-need consciousness week. He said these plans are significantly safer now because of tighter regulations and closer monitoring by the government through the IC. And with the existence of the Pre-Need Code, safeguards and more stringent rules have been put in place, such as requiring pre-need companies to put a sizable amount of solicited investments in trust funds which can only be used for the sole benefit of planholders. This ensures that they will receive as scheduled the benefits guaranteed in their pre-need contracts.
A pre-need plan allows you to save in advance for a future need, like funding for college education or retirement. The concept is simple: you set aside a small amount today so you can receive a bigger sum in the future.
Pre-need plans can also be considered as a form of “forced savings” and ideal for people who lack the discipline to save. If you stop paying for a plan you will not be able to get all the money you have paid so you will “force” yourself to complete the payments. You will also have to wait for it to mature to receive the full benefits. Termination or pre-maturity values will only range from zero percent to 80 percent of the full benefits. This should discourage you from using the money for present needs and other unnecessary expenses.
Pre-need plans perfectly match the tingi or retail mentality of most Filipinos because they can pay via installment. The returns of pre-need plans are comparable to some long-term time deposits but with TDs you need to make a single deposit of a large amount to avail yourself of the good rates. It is also a relatively hassle-free way of growing your money because you let the pre-need company do the thinking on how to make it earn.
Educational plans
Traditional plans are now gone. What most of the failed companies offered in the past were traditional or open plans which promised to pay in full tuition regardless of the amount. But with skyrocketing fees coupled with botched investments, pre-need companies were not able make good on their promises. Now, you can only buy fixed plans, which means a specific amount will be paid directly to you once the plan matures.
Typically, educational plans start releasing benefits when the child reaches the age of 17. It will be paid over four, five or seven years depending on the plan. The benefits of most plans increase by 10 percent to 25 percent every year to keep pace with inflation. Extra features may include cash for elementary and high school education, insurance coverage, a graduation gift and a cash reward for honor students.
Pension/Retirement plans
While a pension plan is designed as a tool to accumulate funds for your retirement it can actually be used to save for other goals, such as buying a new house or car, vacation abroad, your child’s wedding or initial
capital for a business.
You can avail yourself of the benefits from a pension plan through various options. One option is a lump-sum payment where you get paid all the benefits when the plan matures (which can be anywhere from five to 30 years). You may also opt to receive a monthly pension over a fixed period or up to a certain age. Some plans pay you a small amount at regular intervals for several years and then give a lump sum upon maturity. Additional features of pension plans may include life and accident insurance coverage, hospitalization benefit, transfer of ownership, a low-interest cash loan facility and dividend payments.
Life/Memorial plans
Many people cringe at the thought of dying. But this is life’s reality. Sooner or later we will all breathe our last and our family will have to bear the cost of memorial and interment or cremation services. These can be very expensive. That’s why it has become practical to buy oneself a life/memorial plan so that our family will only have to grieve over our loss and not worry about the financial burden.
Traditional life plans render the appropriate memorial service while some plans pay you the cash difference if the actual cost of the memorial service is less than the plan benefit. Fixed-value life plans provide your family with a specific sum which they can use as they see fit. The plan benefit usually increases every year. Add-on benefits of life plans include transferability, assignment to any deceased person you chose, insurance coverage, hospitalization benefit, and return of premium.
According to Lorica, life plan is a more safe product for pre-need being a contingent liability product. Unfortunately, mortuaries now also sell life insurance, which is alarming because they are not regulated.
So for life plan and other pre-need products, it is always safe to check with the Insurance Commission (www.insurance.gov.ph) if the company you are dealing with is an authorized dealer. Lorica knows this, having been in the industry since 1975.
Buy the pre-need plan which you can afford and not what the agent tells you so you won’t spend sleepless nights worrying how to pay for it. The earlier you buy the pre-need plan, the less expensive it will be. Plans that mature in 15 to 30 years have the lowest premiums. To get the best value for your money, always compare pre-need plans from different companies before you settle on one.
Over the years, your pre-need insurance should give you peace of mind knowing that the money would be available to protect your family and even your estate in a number of ways in the future.