MANY of us have some form of property and casualty insurance, or more commonly referred to as nonlife insurance. We probably have motor-car insurance, fire insurance or personal-accident insurance. However, I dare say that so many of us who do have some form of coverage are not really aware what this form of insurance is all about.

When you compare life insurance and property and casualty insurance, you will notice that the only thing similar with them is the term “insurance.” Let’s try to demystify property and casualty insurance.

So what is property and casualty insurance? Property and casualty insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The definition is clear about how property insurance operates. For the insured, it means that the agreement is merely to help him recover what was actually lost due to the unknown or contingent event. A contract of indemnity is therefore exclusive to property insurance.

Why is there a need for this type of insurance? Well, for starters, it really is a risk-distributing device. A person puts money called premium to a common fund and distributes his risk to the group. There is no way for a person to know in advance whether he will receive compensation more than he has contributed or that he will be merely paying for the loss of others.

The primary goal of a person getting insurance coverage is to assure himself that he will not shoulder the loss alone. He may gamble, take his chance that he may be able to steer his property away from a loss and its devastating effect. But putting a minimum amount, and considering that such amount is the only sum he is bound to lose in case a loss actually occurs, is the logic behind getting protection for your property. However, it is unfortunate that most Filipinos still cling to his fatalistic philosophy of bahala na. When the loss happens, it is already too late.

Risk is an everyday reality. This is the reason people make calculations instinctively to avoid risk. They forget that their own negligence (lack of foresight, lack of skill to prevent loss) is the paramount reason why property insurance is there in the first place.

… to be continued.

… conclusion.

For some reason, and despite the obvious importance of taxes in the daily operation of the state, it has exempted life-insurance proceeds from the ambit of tax laws, save for some exceptions, of course.

Our Tax Code recognizes the role and importance of insurance to the family of the person insured. It also exempts insurance proceeds from garnishment, attachment and execution of judgment-creditors. For those who have accumulated a hefty estate, life insurance can do wonders for them.

Most, if not all, estates left and brought into the inventory of the Bureau of Internal Revenue (BIR) are comprised of illiquid assets. If the typical Filipino would put it, the heirs are already in their advanced ages before they step into the succession, and the grateful recipients are not individually willing to shell out money for the settlement of estate tax and money claims of creditors. Others do not simply have the means.

In one case, the Supreme Court sustained the BIR when it assessed and collected the entire tax due from one of the heirs among several even if it means that all he had inherited would be dissipated in the process.

This need not happen unless we forget that life-insurance proceeds can be used to pay the taxes and claims and, in the process, keep the assets intact. A person can also use insurance proceeds to provide for his illegitimate descendant who may be left out of any shares in his estate. An illegitimate child gets the equivalent of half of the share of a legitimate child, and that share will be taken from the free portion, if any.

In other words, life insurance can promote “equitable” sharing. Most important, for a person with modest earnings, life insurance can provide an estate as big as his millionaire neighbor who did not believe in his insurance, the latter probably has very little or none at all.

Life insurance is just one of the tools for your estate plan. To emphasize its importance, Black’s Law defined estate planning as “the preparation for the distribution and management of a person’s estate at death through the use of wills, trusts, INSURANCE POLICIES and other arrangements, especially to reduce estate-tax liabilities.”

Do not just plan on the aspect of accumulation, plan for its conservation and distribution, for in the latter is where your absence will be.

Life insurance is not the only way to go about estate planning, it is just a tool among many. However, life insurance is a very powerful and cost-effective tool.

“A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.” – Proverbs 13:22, NIV

…con’t.

Christianity has modernized our mystic concept and infused it into our laws. “Birth determines [legal] personality. Death extinguishes it.” You, as the owner of the estate, may be about to leave this mundane world, but your legacy may be passed on to your heirs and for generations to come, and that’s what makes you immortal.

People have been looking at ways on how to distribute wealth to their heirs—hence, estate planning. This is a concept that is looked at as a design, a scheme, to help a person avoid the impact of heavy taxes on a person’s “privilege” of accumulating wealth and passing it on to his heirs.

Yes, the Tax Code will tell you that what you have is a mere privilege. Settling taxes first is the operative act before the family can acquire the properties left to them.

Is inheriting automatic? How automatic is “automatic”? my beloved professor so loves to ask.

Technically so, inheriting your parent’s or grandparent’s properties is not simply “automatic” even when the law says “by operation of law.”

Estate planning is much more than simply avoiding taxes. Tax is not always the main consideration when one looks at estate planning.  This writer believes that estate planning is all about supervision, conservation and distribution. Tax avoidance is just an incident of what planning brings to him.

There are many tools for planning one’s estate in the aspect of conservation. Let us, however, focus on the most simple yet effective of them all—that is, life insurance.

Taxes are the lifeblood of the state. Its collection should not be in any way delayed. It cannot be overemphasized how important taxes are. The Supreme Court says in a myriad of cases that if there is doubt on whether or not to grant tax exemption, the doubt shall be resolved against the taxpayer.  Avoiding taxes and grant of exemptions are frowned upon. Nonpayment of taxes even merits a criminal offense. The Tax Code also assesses the taxpayer, “whichever is higher.” … (to be continued)

Catch Part 3…