Five Tips to Save Money in your Life Insurance Premiums - EfPrime Financials

If you haven't bought your life insurance yet, then this article is for you. Oftentimes, first-time buyers of life insurance failed to recognize this information, hence, they have no idea of what to expect or of want they should aim to include in their specific policies. As a result, they tend to rely solely on the recommendations of other people. 

Here are the five tips to save in your life insurance premiums: 

1. Start Early in Investing in Life Insurance
2. Buy Term Insurance 
3. Cover all life's risk 
4. Invest longer Paying Period  
5. Get to know a Steady and Strong Insurance Company

"If there is anyone dependent on your income - parents, children, relatives - you need life insurance. Suze Orman" 

Start Early in Investing in Life Insurance 

The earlier you start investing in life insurance, the cheaper is the cost of insurance. This is the first principle that you should consider in your decision. The reason behind this is that the younger you are, the lesser is the risk of you being diagnosed with critical illness or even early death. Hence, a lower chance that your beneficiaries would claim for your life insurance coverage, making its cost of insurance lower.

If you defer your purchase of life insurance, then expect that your life insurance premium 1/ will likewise increase as you age until you find it difficult to acquire a single one. 

Once you buy your insurance, make sure that you finish paying for it or suffer its consequences. 

Buy Term Insurance 

There are different types of life insurances in the Philippines. One of which is a Term Insurance. Term insurance is an insurance that is good for individuals who are starting with their respective jobs who are just beginning to build and provide for themselves. It is cheap life insurance that does not have an investment feature or a cash surrender value. Term insurance secures the life of the life insurance applicant, meaning if something happens to the insured i.e. death, then his/her respective beneficiaries will get the life insurance coverage. However, if nothing happens to the insured, then the premium payments are considered expense since what term insurance offers is only protection within the covered period. 

After gainfully earning more income, you can transition to life insurance products that provide more protection and even insurance with investments called Variable Unit Linked (VUL) insurance. 

Cover All Life's Risk  

You can save money by covering all life's risks as early as possible. Again, the younger you start, the cheaper is the cost of insurance. It is also advisable to cover all life's risk such as accidents, critical illnesses, and hospitalization and untimely death since the cost of encountering any of these risks mean you will lose a lot of money. 

The cost of having life insurance covering all these life's risk is cheaper as compared to the expenses that you might incur if in case you get to experience any of the risk enumerated. 

Invest in Longer Paying Period 

This is where people erred in their decision to purchase life insurance. When you are paying for a debt or loan, you would want to pay a shorter payment term because the shorter you pay, the smaller is the cost of interest expense that you pay. However, in life insurance, it is otherwise, you should not treat your payment for life insurance as an expense that is related to a debt or loan. You should consider paying a longer period whether you are buying term insurance, permanent insurance, or variable unit-linked insurance. 

To illustrate the point, take this as an example. Assume that Mr. Alfonso, 30 years old, was offered two (2) term insurances. Plan A, PhP2,000,000.00 life insurance coverage with PhP30,000.00 quarterly payments for a five (5) year paying period versus Plan B with PhP2,000,000.00 life insurance coverage with PhP15,000.00 quarterly payment for a period of twenty (20) year paying period. Which of the two should he get? Most Filipinos would choose the former than the latter. On the other hand, an intelligent investor will answer twenty (20) years. These are the reasons. 

1. Paying lesser for paying longer term
• If in case death occured in the 5th year of the life insurance policy then in Plan A, total payment is already at PhP600,000.00 while in Plan B total payment is only at PhP300,000.00. In this sense, insured actually saved PhP300,000.00 worth of premium payments in longer payment period. 
• If in case no death occurred and the Insured outlived the payment period. Here are the actual payments. In Plan A, Insured paid PhP600,000.00 paid in first 5 years while Plan B, Insured paid PhP1,200,000.00 in twenty years' time. Comparing the two (2) payments you may say that you saved money in paying for the shorter period, but to analyze said payment you need to consider the present values of Plan A and Plan B. The present value of future payments in Plan A is PhP555,240.59 while the present value of future payments in Plan B is PhP899,916.60. Meaning if you pay for Plan B for 20 years, you availed your self of 25% discount ((PhP1,200,000.00 - PhP899,916.60)/PhP1,200,000.00)) while in Plan A 7.46% ((PhP600,000.00-PhP555,240.59/PhP600,000.00)). In the following example, I used 3% to represent the rate of inflation. Read number 2 for elaboration. 
• The downside of paying longer term is that it is prone to lapsation since people tend to forget due dates
2. Payment in relation to inflation and source of income 
• As time pass by, the value of money decreases due to inflation. This means that your PhP15,000.00 today is not valued as PhP15,000.00 in the future. Its actual value is actually lesser. Add this fact to the reality that as time pass by your source of income increases because you'll be promoted in your work or you will have new businesses. My point is that by acquiring a fixed payment that is set for a long period of time will eventually be cheaper to you since your income grows while the value of the money you pay decreases. 
3. Strech the use of your cash
• Since you are paying less premium for your long term policy, you can use your excess cash to other income-generating activities

At the end of the day, life insurance is the only investment that you do for your family. You are buying life insurance so that the persons that depend on you can continue to pursue their dreams and aspirations despite your absence. 

Get to Know a Steady and Strong Insurance Company 

If you want to invest in a strong brand, then consider Philam Life Insurance. When investing, the insurance company that you should be investing in is at least the top 5 biggest company so that bankruptcy is remote of the problems that you think about. You will not lose money in the process. 

It is a strong brand that is in operation in the Philippines for more than 70 years. It has been consistent as the number one insurance company in terms of Net Worth and Total Assets through the years. Net Assets or Net Worth is the amount of money that a company has after deducting all the amount of its liabilities. This means that in case of bankruptcy or liquidation of the business, investors like you and me can surely get the investments that we put in the business. 

Another tip to note is that you should know a Financial Advisor to keep you updated on the new life insurance products that are available in the market. Some insurance companies provide special rates for campaigns and newly released life insurance products. 

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CONCLUSION 

You can save money in your life insurance premiums if you follow these five tips. In reality, only less than 2% of our Filipino population has life insurance. If you think that you needed one, which in reality, we all needed, then, you made the first right decision in your adult life. I just hope that you start now so that you can save on your life insurance premiums. 

Again, at the end of the day, life insurance is for your family. You can never go wrong in choosing to save your family. Our family is our treasure. 

 

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Disclaimer 

The Author is advising readers to consult with your respective Financial Advisors before venturing in any investments. Investing your money is dependent to your goals and your risk tolerance. You should know the risks and rewards of investing before you actually do the same. The illustrations above are for educational purposes only and any risks or losses that you may incur are imputable to your respective decisions.

The author does not in any way provide a guaranty as to the effectiveness and quality of the products and services that are featured in this blog.  The products and services were advertised based on personal experience and product and service reviews that the product/service received. 

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1/ Premium is the amount of cost of insurance that you pay to the Life Insurance Company for securing your life. None payment of your regular premium payments will result in the lapsing of your life insurance policy. 

Sources:  

1. Read more at https://www.brainyquote.com/topics/life-insurance-quotes