Question: Should I invest in a life insurance or use the money to expand my small business?—Mary Anne Maloles Tesoro via Facebook

Answer: I am a firm believer of life insurance. I make sure my life insurance policies are always in force as they give me and my wife peace of mind. With the way I travel and the many hazards I face like sleeping audiences and bored readers, life insurance is an important risk protection tool for me. Life insurance is first and foremost a tool for risk management by way of a risk transfer mechanism. Simply put, certain life risk such as untimely death or serious physical breakdown can be assumed by way of an adequate life insurance policy. Since I am married, happily at that, and have four lovely children, having the protection of a life insurance policy is a priority.

Life insurance as an investment is another story. The primary purpose of life insurance is to provide financial protection against life’s risk but investment can be a secondary benefit. It is difficult to compare life insurance with other forms of investments because of the nature of insurance itself. Life insurance needs to deal with actuarial tables and a lot of probabilities because of its primary tables. All those probabilities need to be accounted for and adequate provisions must be made. When you invest in a life insurance policy, not all the money goes to investment as some is allocated for insurance premiums. There are many types of life insurance but since you are referring to it as an investment, I assume you are talking about the variable universal life or unit linked insurance—an insurance  policy with an attached investment similar to Mutual Funds or Unit Investment Trust Funds. Variable type insurance will not perform at par with a mutual fund or a UITF because not all the money is invested in the funds—premiums for insurance protection are allocated from the money invested and these are recurring charges. The bigger the coverage, the smaller the amount goes to pure investments. Its advantage, however, is when the insured (or investor) dies, the named beneficiaries will get both the insurance coverage and investments as well as some estate tax benefits.

Comparing life insurance and small business is like comparing apples with durian, which are worlds apart. Further, the issue of risk and return comes to play in this concern and business is always risky and speculative. Business is also where you can really earn a lot of income and it can substantially grow your capital, albeit all the risk it carries. I’d like to look at insurance as a way to protect future income while business or investments is a way to maximize income. Will business be better as an investment? Definitely! A good business idea coupled with a good business plan and impeccable timing can make your capital grow bigger and faster than paper assets. But, as the saying goes, the higher the yields, the higher the risks. Most start-ups fail and the percentage of those that succeeded is quite disappointing. Yet, I believe we should take a wee bit more risk with our money and be a tad more entrepreneurial—as cliché as it sounds, no guts no glory. Just be prudent and know what you are getting into.

Know your objectives. If your objective is substantial capital gain or adequate provision of income, life insurance products are not the answer—business or other investments are. If your objective is moderate capital growth with financial protection against life’s risks, then life insurance is something you can consider. Also, life insurance products are long-term in nature.

Should you choose between life insurance and business? I say you may need both. If you have loved ones depending on you and your income, you definitely need to assess your life insurance needs. If you are disappointed with the gains you get from other investments like time deposits or special deposit accounts (yields are lower than inflation) then do consider other investments, small (or large) business being one of them.

Just a friendly reminder: Before letting go of your hard-earned money, investigate before investing; check out your alternatives and if need be, talk to professionals. Remember, prudence is always a good virtue.

This article also appears at the Philippine Daily Inquirer

Source : Insurance Commission

The Insurance Commission has released its report on the performance of life insurance companies as to New Premiums. The list includes First year premiums or FYP plus all Single Pay Premiums. FYP indicates the amount of new life insurance sold for a particular year and life insurance companies make sure that there is a steady flow of new business coming in their books to ensure their viability, market share and ultimately, profitability.

The Insurance Commission reports combined all new premiums, FYP & Single Pay into one report. Single pay premium are life insurance policies that require no further payment of premiums and are already fully paid. Customarily, many companies report single pay premiums only at 10% in their books and I believe the Insurance Commission should do so as well.

You will notice that 11 out of the top 15 companies sell a lot of Variable Insurance, this are insurance policies that have investment funds attached to it. Bulk of the premiums being brought in the form of variable insurance. In principle, variable insurance premiums are largely investment funds and in the strictest sense, not really insurance premiums… but let’s leave that with the Insurance Commission. Some refer to variable insurance as Unit-Linked or VUL. Further, insurance companies with Bank partners under a Bancassurance arrangement are getting a big pie of the share of premiums. In fact, a substantial amount of new premiums being generated for the past couple of years are coming from Bancassurance and through the sale of variable insurance.

Some tidbits that might be interesting enough to mention. Sun Life shows impressive performance even without a Bancassurance partner although they have recently bought half of Grepalife so one can be assured that their numbers will change next year. Insular Life is the only purely Filipino company in the top 5 category. Prulife is registering phenomenal growth in the new business arena largely through the sale of variable insurance. Philamlife’s agency operations tries to remain strong and continues to perform despite challenges. Generali Pilipinas, despite having a strong banking partner, BDO slips in the new business race with their decision to discontinue selling single pay premiums.

With the obvious growth of Bancassurance, what is the future of tied-agencies (exclusive agents of companies)? Seems there must be some re-learning, re-training and re-engineering that needs to be done for tied agencies if they are to survive the onslaught of changes. Personally, I believe the role of tied-agencies is very critical to the sustainable growth of the life insurance industry — agents can do better financial planning and can maintain stronger relationship with clients so I’m really rooting for them. But, both Bancassurance and tied-agency system can work together and provide financial security for Filipinos.

Off hand, I think the life insurance industry is doing a good job of providing financial security to Filipinos, such a herculean task. My only concern is scale — reports shows that way below 1/5th of the family heads of the country has some form of insurance. Growth in premiums may not necessarily mean more people are being insured. Any growth in new lives being insured is dwarfed by the increase in population.

My dream for this institution, and to all the other financial institution is this : sell less, and educate more — and the business will just flow.

My 2 cents.

The 2010 Top Life Insurance in total Premiums are here https://www.randelltiongson.com/top-life-insurance-of-2010-my-thoughts/

The Insurance Commission has released the ranking of the Life Insurance Industry for 2010 according to revenue or total premiums.

Philamlife keeps its lead in the pack its lead over the Canadian insurer Sun Life is a narrow one with only a 600M lead. 2011 will be an eventful year for 2010’s 2 largest life insurers. Ayala Land’s Rex Mendoza took over the leadership of Philamlife as its newest CEO. Rex Mendoza was Philamlife’s former EVP and the President of Philam Asset Management (PAMI) prior to his transfer to Ayala Land in 2005. Sunlife, on the other hand has acquired substantial ownership of Grepalife & will soon launch a Bancassurance partnership with RCBC. The heat is on between these two and 2011 would be an interesting year to watch.

2010 also saw the dislodging of Insular Life by Axa Life as the 3rd largest insurer in terms of premium income. Further, Prulife UK also gains ground and also overtakes Insular by landing in the 4th place.  Canadian insuerer Manulife improves a notch and lands on the 7th place. The Italian insurer & BDO partnership Generali Pilipinas slides to the the 10th spot from its 7th slot in 2009.

Many of the top insurers sells market driven products and it seems that the robust market of 2010 seems to have helped the industry. In contrast, Generali Pilipinas decided to discontinue selling single pay products and focus on the more profitable regular pay products.

While there has been some growth in the life insurance industry, a bigger concern is the minuscule number of Filipinos being insured as compared to our growing population. We still have a very low percentage of insured population which is a tragedy as insurance is a very important tool for risk management and long term savings.

Unfortunately, insurance products are still being pushed and peddled although I know there have been vast improvements on the competencies of intermediaries. It’s just that we need to get all insurers & intermediaries on board and consider the advocacy of education first and foremost. I encourage the insurers and those selling insurance products to try harder in educating the Philippine market on the merits of financial planning — herewith is the key that will unlock substantial & sustainable growth for the industry.

My 2 cents.