What is Insurance?
According to Investopedia by Julia Kagan (April 2019, https://www.investopedia.com/terms/i/insurance.asp) that Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.
Variable Unit-linked vs. Traditional Life Insurance
Variable Unit-linked vs. Traditional Life Insurance
Significantly, the statement above clearly stated that insurance has a good benefit. However, the above-mentioned statement was somehow the "old style" or the traditional one. Now, we have what we called as Variable unit-linked insurance, also called variable universal life insurance (VUL). It is a permanent life insurance plus investment. Yes, all in one, in one product. How do VUL works? It provides living, death, and disability benefits with an investment component. Yet, the investment returns may vary depending on the rise and fall of the markets where the premium is invested. Also, if you live beyond your 60s, you can use the investment returns from your VUL plan to fund your retirement. Moreover, as a permanent insurance policy, VUL won’t expire and you’re insured for as long as you keep paying your premiums. This makes it different from the term life insurance, which lasts for only a certain period, typically from 7 to 10 years. In the Philippines, the usual practice is that 5% of the premium goes to the cost of insurance, while 95% goes to investments.
Importance of Life Insurance
Life Insurance is the basic foundation of your deep pockets. Why? If you lack a foundation in wealth-building you might end up selling all your properties when a single misfortune happens. Be it sickness, accident, or death.
If you have a Life Insurance that is enough to cover your family's financial losses then, whatever may happens your family is secured and your empire is protected. That's how Life Insurance works. Protecting you, your family, and your empire from any catastrophic situation may arise.
The rule of thumb of Life Insurance
According to Dr. Sanjay Tolani, there is actually a rule of thumb for insurance. Just like how many glasses of water you need to drink on a daily basis.
- 10 x of annual should go towards LIFE COVER
- 5 x of income should go towards INCOME PROTECTION
- 20% of income should go towards RETIREMENT PLANNING
- 5% of income should go towards KIDS EDUCATION
For the most part, Life Insurance is the only bill that will make you more money — for your child's education, retirement, etc.
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