‘Investassure’, the way to healthy finances
Investassure is the strategy of ensuring that your family will receive your target wealth should you be called early from this life
QUESTION:
Isn’t life insurance just an expense? I keep on paying premiums and yet I do not see any immediate benefit. I would rather invest my money. If I do investing right, I will not only retain my money but also get to grow it, correct? – Anonymous SMS through “ask a friend, ask Efren” service
Answer: Allow me to ask you a question. What is the probability of you earning money from investing? Will it be 100 percent? Chances are you are going to say, “no, it’s probably much lower.”
Now tell me what the probability of dying is? Since all of us will die at some point in the future, the probability is 100 percent. Life expectancies have been getting longer since the 1960s. According to the website www.worldlifeexpectancy.com, the average life expectancy for Filipinos (both male and female) lengthened from just 53.4 years in 1960 to 71.4 years in 2010. But guess what, morbid as it may sound, people still die. Insuring against the ultimate peril to life is therefore a sure bet.
In an earlier article, I talked about the CD-RW or cash, debt, risk and wealth management pillars of personal finance (http://business.inquirer.net/85234/before-you-invest-protect-your-downside). I emphasized that cash, debt, risk and wealth management should be applied in that particular order or all at the same time and not in any other order. The only exception is if you could apply RW or risk and wealth management at the same time. This is where “investassure” comes in.
Investassure is the strategy of ensuring that your family will receive your target wealth should you be called early from this life. In other words, Investassure combines the power of investing with the safety of insuring.
What kinds of investment should be paired with life insurance? Ideally, these should be long-term investments because life insurance provides long-term protection. More importantly, long-term investing is ideal because it makes time your partner. Time not only makes investing more affordable, it also keeps you from chasing after high (potential) return investments with elevated risk levels. What’s more, a long-term investment horizon gives you enough time to bounce back from potential losses.
Believe it or not, putting money intended for long-term goals in short-term placements that have guaranteed interest also puts you at risk of losing value on your money. This is because short-term rates are very much lower than the inflation rate. You will thus have to get out of your comfort zone if you want to earn large and positive real returns.
Equity-, balanced- and bond-invested mutual funds and unit investment trust funds (UITFs) are perfect examples of long-term investment vehicles. These funds are ideal if you will need to harvest your investments at least five years from now. And the ideal pairing under investassure is term or permanent life insurance policies with mutual funds and/or UITFs.
By design, law and regulation, mutual funds and UITFs do not quote any fixed interest rate, do not guarantee income or the return of principal and do not commit to any maturity date. While risk is higher with mutual funds and UITFs, the risk is not the reward. The reward is the potential of beating inflation and better providing for your future at a time when deposit rates have been hitting all-time lows.
Investassure is perfect for the guarantee-fixated Filipino investor because it provides a guaranteed minimum amount of cash through life insurance (again, should the unthinkable happen). Such life insurance benefit will be on top of the market value of your investment at the time you are called from this life.
Another type of fund, variable unit-linked insurance, applies investassure in one neat package. Each premium payment by the policy holder is broken down into an investment and insurance component. Just check out the kind of life insurance policy you want packaged with your preferred type of investment and desired modes of investing.
You may ask, “what will I do with the life insurance component of investassure should I reach my target level of wealth?” Just keep it. Your beneficiaries could still use the proceeds to pay for estate taxes. On the assumption that your investments do well, you could simply pass on more wealth to your heirs.
To help you in quantifying your goals, please download Ya!man™, the country’s first personal finance mobile app. The Android version of Ya!man™ may be downloaded from Google Play. The app’s Symbian (40 or higher) OS version may be downloaded from www.personalfinance.ph. The iOS version is coming very soon. Ya!man™ also comes with a feature where you can ask a financial expert clarifications about financial planning. Everything with Ya!man™ is absolutely free.
If you want to learn more about effective personal finance, please visit www.personalfinance.ph. There are a lot more free resources there for you to benefit from. You may also want to attend EnRich™ on Aug. 3, 2013, our public training on personal finance. Details for EnRich™ like the deadline for the early bird rate can be found in the website.
So invest and insure at the same time. In other words, investassure.
Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines. He is best selling book author of Pwede Na! (A Complete Guide to Personal Finance) in 2004, and is the chairman and president of the Personal Finance Advisers Philippines Corporation.
Source: http://business.inquirer.net/130115/investassure-the-way-to-healthy-finances
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