Tuesday, April 29, 2014

Choosing Between Term and Non-Term Life Insurance

If you read personal finance blogs or books long enough, you will surely encounter the "Buy term, invest the difference" phrase. This basically means to buy basic, no-frills insurance and invest the difference of what you would have spent on non-term life insurance (i.e. whole life, universal and their many permutations) in mutual funds or stocks, since that will usually guarantee a better yield than "investing" with non-term insurance.



At first glance this does seem like the correct move, but is it the right move for me? If there's anything I've learned from my Registered Financial Planning (RFP) class is that there is no cookie cutter solution for everyone. Needs are different and so it follows that solutions will likewise differ as well.



For example, I've been thinking of getting life insurance for my husband and so I looked at term insurance  with daily hospital income from PruLife. Here's the table of payments sent to me (this was sent last year, but let's just assume that the price is the same or if there is an increase that it is only minimal):


 





If I get term insurance of Php1,000,000 (Package 3) for my husband until he turns 65, this is how much we'll be spending:


Year 1= 45y.o. =  Php10,017.00


Years 2- 6 = 46 y.o. to 50 y.o. = Php74,270


Years 7-11 = 51 y.o. to 55 y.o. = Php114,855


Years 12-16 = 56 y.o. to 60 y.o. = Php178,145


Years 17-20 = 61 y.o. to 64 y.o. = Php220,172



Total premiums paid for 20 years= Php597,459



On the other hand, the quotation I got from the same company for basic whole life insurance for the same amount of Php1,000,000, excluding daily hospital income, for my husband is Php34,690 per year. If we avail of that policy and pay for the same 20 year period, the total premiums paid will be: Php693,800 (Php34,690 x 20 years).



That's a difference of Php96,341 between the premiums paid for term and basic whole life, which is honestly quite a negligible amount when spread out over a 20 year period.



Furthermore, a basic whole life policy has a built-in savings component which you can access if you need cash. Term insurance does not have the same advantage and whatever you pay for the year is considered gone if you don't kick the bucket within that year.



I realize though that my analogy isn't exactly apples to apples, because my example for whole life insurance does not have a daily hospital income rider and if it did have the same rider as the term insurance, then the premium will most definitely be higher. But my point is, do not discount non-term insurance right away by chanting "Buy term, invest the difference" like an automaton. See for yourself first if it will indeed be to your benefit to buy term.



From what I see, these are the people who will get the most from term insurance:



1. Those at the start of their careers or married lives, because it's exactly those people who are just starting out in life who need protection more (i.e. mortgages, car loans, young children);


2. Those who cannot afford the higher premiums of a basic or variable life insurance, but want the same degree of protection for their beneficiaries; and


3. Those who will actually invest the difference in stocks or mutual funds.



As always, buy insurance because you want to insure your earning capacity for your family's sake. Never do so for investment purposes. Investing should only be a secondary consideration when it comes to taking out a life insurance policy, because let's be real, there are other vehicles that outpace the returns of insurance funds year in and out, despite what your insurance agent might hint at.



If you have dependents and you want to secure their future, protect them by taking out life insurance on yourself or your spouse. There are no ifs and buts about it.




P.S.


I do not claim to be an insurance expert by any means, neither am I affiliated with any insurance company. These are just the ramblings of an ordinary person who takes insurance coverage seriously.

Choosing Between Term and Non-Term Life Insurance

If you read personal finance blogs or books long enough, you will surely encounter the "Buy term, invest the difference" phrase. This basically means to buy basic, no-frills insurance and invest the difference of what you would have spent on non-term life insurance (i.e. whole life, universal and their many permutations) in mutual funds or stocks, since that will usually guarantee a better yield than "investing" with non-term insurance.

At first glance this does seem like the correct move, but is it the right move for me? If there's anything I've learned from my Registered Financial Planning (RFP) class is that there is no cookie cutter solution for everyone. Needs are different and so it follows that solutions will likewise differ as well.

For example, I've been thinking of getting life insurance for my husband and so I looked at term insurance  with daily hospital income from PruLife. Here's the table of payments sent to me (this was sent last year, but let's just assume that the price is the same or if there is an increase that it is only minimal):


Saturday, April 12, 2014

How to Create a College Fund For Only Php5,000

Of the six sessions I've attended so far for my Registered Financial Planner (RFP) course, the one that really caught my attention was the lecture on Time Value of Money.


Even the fact that TVM involved a lot of computation did not deter my interest (this from a person who chose her college course based on the number of math units required. Math 1 for the win!), and I actually stayed up past midnight a few days after my class researching on TVM and solving problems. Imagine that!


Anyway, what really hooked me on TVM was how I could start planning for Ace's college fund starting now, and for as little as Php5,000 a month. Here's how I plan to go about it:


How to Create a College Fund For Only Php5,000

Of the six sessions I've attended so far for my Registered Financial Planner (RFP) course, the one that really caught my attention was the lecture on Time Value of Money.

Even the fact that TVM involved a lot of computation did not deter my interest (this from a person who chose her college course based on the number of math units required. Math 1 for the win!), and I actually stayed up past midnight a few days after my class researching on TVM and solving problems. Imagine that!

Anyway, what really hooked me on TVM was how I could start planning for Ace's college fund starting now, and for as little as Php5,000 a month. Here's how I plan to go about it:

Tuesday, April 8, 2014

Book Review: OMG! Where Did Your Sweldo Go?

Lianne's The Wise Living was one of the first local personal finance blogs I followed. I was amazed that this young girl was dishing advice on budgeting and saving money, when most of her peers were concerned with buying the latest It bag or dining in the newest hot spot. But what struck me most about Lianne was her upbeat attitude and how she genuinely wanted to help others out through her blog. I knew that it was just a matter of time before she would come out with her own book and when her first print baby came out (she also has an E-book available for free in her blog), I felt like a proud mama hen. Way to go Lianne!

OMG! Where Did Your Sweldo Go? is targeted towards the yuppies or those who are finally earning money after years of being a poor student. Lianne simplifies the different personal finance jargons and theories, presenting them in bite-sized pieces so as not to overwhelm or scare off the reader.

The best thing going for the book though is Lianne herself. With her light and breezy approach to the topic, it becomes immediately clear that personal finance is not rocket surgery after all! ;-) And being a millionaire, or even a multi-millionaire, is not impossible to achieve.

A common theme prevailing in personal finance blogs and books is how the authors always wished they became financially responsible earlier, how they wanted to slap their younger selves silly just to stop their profligate ways.With Lianne's book, the road to financial responsibility becomes easier to manage because she helps you along the way with her Secret Sweldo Tips.

Take her Secret Sweldo Tip #2: The Wheel of Control, for example. In this chapter, she pounds it into our heads that the only thing between you and success is yourself, so take responsibility for your life and stop being a Whiny Wiener. To further appreciate the Wheel of Control, here's how Lianne explains it:

W- Wealth
  • Take care of your money and control your finances.
  • Don't blame other people for your poor money habits.
  • Don't depend on others to provide for your because you are an intelligent, capable and independent grown-up.
H- Health
  • Don't blame your parents, your great-grandparents or your bald uncles for your conditions, even though genetics play a significant part in your health status.
  • Control the food that goes into your body- you wouldn't like to store useless junk in your tummy, right?
  • Move. Exercise!
E- Education
  • Don't blame your school's curriculum for your failures.
E-Emotional State
  • Know that your thought are very powerful and accountable for your actions; therefore, promise to filter them accordingly.
  • It's up to you whether you want to be influenced by other people's thoughts or not.
L-Love
  • Be mature enough to give back to the community and make your money mean something.

Good stuff right?

I have passed Lianne's book to two of my officemates who are interested in learning more about personal finance and they both agreed that it was a fun and easy to read book.

I recommend this book to those who are interested in taking their first steps towards financial independence. I also think that this book will be a nice graduation present, something to give to your child, sibling or friend who is just about to start earning money. It will give him/her another perspective about money, a refreshing change from the "Buy! Buy! Buy!" messages we are constantly bombarded with in our daily lives.

Once again, congratulations Lianne on coming up with a timely and well-written book! I can't wait to see what you'll come up with next :)

Book Review: OMG! Where Did Your Sweldo Go?

Lianne's The Wise Living was one of the first local personal finance blogs I followed. I was amazed that this young girl was dishing advice on budgeting and saving money, when most of her peers were concerned with buying the latest It bag or dining in the newest hot spot. But what struck me most about Lianne was her upbeat attitude and how she genuinely wanted to help others out through her blog. I knew that it was just a matter of time before she would come out with her own book and when her first print baby came out (she also has an E-book available for free in her blog), I felt like a proud mama hen. Way to go Lianne!

Thursday, April 3, 2014

Happy Birthday To Me!



Well not really. My birthday isn't for another three days, but I can't help it. I always feel giddy whenever my birthday rolls in.


Last year, I had a birthday party/ baby shower in my parents' house. I can't believe how huge I was back then! I've almost forgotten how uncomfortable it was to be that far along my pregnancy, and that's probably why I'm already entertaining the thought of another baby. Ack.


I don't even know what the point of this blog post is. I just missed blogging. I miss blogging per se and I can't wait until my RFP classes are over so I can dedicate my Saturdays to blogging. I don't even look at my other blogs anymore because I just feel bad that I'm neglecting them. Don't worry babies, mama will be back soon.


Ok, break's over and it's back to work. But I'll have a book review out within the week, so please watch out for that!

Happy Birthday To Me!


Well not really. My birthday isn't for another three days, but I can't help it. I always feel giddy whenever my birthday rolls in. 

Last year, I had a birthday party/ baby shower in my parents' house. I can't believe how huge I was back then! I've almost forgotten how uncomfortable it was to be that far along my pregnancy, and that's probably why I'm already entertaining the thought of another baby. Ack.

I don't even know what the point of this blog post is. I just missed blogging. I miss blogging per se and I can't wait until my RFP classes are over so I can dedicate my Saturdays to blogging. I don't even look at my other blogs anymore because I just feel bad that I'm neglecting them. Don't worry babies, mama will be back soon.

Ok, break's over and it's back to work. But I'll have a book review out within the week, so please watch out for that!