Insurance 101: Check Background of Both Company and Insurance Agent

Scout for financially stable company that will still be in existence when your child enters college, for example. Due to downtrend in investment yields, most companies recently became hard pressed to meet future obligations, leading to a local pre-need crisis that happened in 2005.

Also, avoid agent who is more concerned with making a sale rather than looking after your benefits and needs. if an agent comes to you pushing a product without even knowing what you really need, stay away from him.

TIP: Compare products and companies to get good value, but premium cost should not be your sole barometer. A more stable insurer will usually charge a higher premium.

To know the financial strength of a company, check independent rating agencies like Moody's Standard and Poor's at standardandpoors.com.

To know if your agent carries certain distinctions earned through classes or examinations, ask if they are registered financial planners or under Life Underwriting Training Council Fellow. Go also for those who have excellent record on after sales service.

On choosing between pre-need firms or insurance companies. Pre-need companies owned by large insurance companies would be very stable, as they are usually run by the same management teams and follow strict internal guidelines.

Insurance 101: Decide on the Type of Insurance Product Based on Accounted Need

A lot of insurance products are out there, with varying modes and periods of payment and premiums. But the two basic types of insurance you need to understand are term insurance and cash value.

Term Insurance: Here, you pay for the coverage on a specified time, and if you die within that time, your survivors get the benefits. Term policies do not build cash values, but there are types like a term convertible policy, which can be changed to whole life policy without a physical exam and is a good option for individuals who are aged 40 and below.

Cash Value. Aside from receiving the death benefit, the cash value is redeemable. Most common types are whole life or universal life.

• Whole Life: A life insurance policy that keeps you covered until your death as long as you keep paying the premium. The premium you pay will be greater than the term policy if you are still young, but decreases as you grow older, and goes directly to the cash value of your policy. You can borrow against your cash value, which is tax deferred and grows at a fixed rate.
• Universal Life: The amount of your premium, which you could vary from month to month, is credited to your cash value. You can borrow partially without putting your coverage at risk, but if your premium payments fall too low, your policy may lapse.

TIP: If a family is young and income is not yet ideal, it is recommended that the breadwinner gets covered first by less expensive products such as whole life or term.

Annual premiums are always cheaper. Usually, single pay policies cost less in the sense that you have advanced all your payments. However, single pay policies, because of cost, can only buy small coverage.

On the contrary, whole life insurance cannot finance a child's education because earnings such as cash value and dividends are lower. But combined with an investment portfolio, there is assured cash for the continuation of the family's income and children's education if the insured dies or is permanently disabled.

Insurance 101: Calculate Your Family's need and Paying Capacity

Know first how much insurance coverage your family needs and can afford. Rather than looking for a product first, determining your need should be the priority. Buy something you can afford so paying modes and options can be aligned with budgetary concerns, because a lapsed insurance policy is a waste of good money. In short, if you don't pay the premium on time, you stand to forfeit your policy.

Ideally, coverage is the amount that will allow your dependents to still live the same lifestyle without touching the principal of your investment.

TIP: Get a calculator and compute your current annual household expenses, assets, debts and other sources of income. It's handy to have your checkbook, credit card statements, and last year's tax return around. You can also check with a financial advisor to assess your family's need and paying capacity.

Basic Insurance Tips

Some people when they hear the word insurance, would quickly think of "EXPENSES". But insurance helps safeguard you and your family's future. Here are some tips in pinking out the right insurance for you.

• Get a Health Insurance. Prudence dictates this if you don't want to worry in the event of health problems. You also avoid being a burden to your family.

• Get a Life Insurance. Have enough life insurance to replace at least five years of your salary, or 10 years if you have kids or significant debts.

• Just Have Enough. If you're single and have no dependents, you don't need life insurance, just health insurance.

• Think Insurance If You're Buying a Car. A more expensive car mean a high priced insurance. So before you buy that dream car, take this into account.

• Write a Will. Filipinos don't usually do this but this will protect your family and help minimize quarrels (and even litigation!) among remaining members of the family.