Life insurance provides financial security for you and your family. Lianne Laroya, founder of the personal finance and lifestyle website The Wise Living, considers insurance as a “tool where you pay centavos to get thousands” since the payout received is much greater than the total premiums you pay. This payout covers a variety of situations – medical coverage, estate tax assistance, and burial expenses among others. Despite the benefits of life insurance, many are still hesitant to insure themselves.
You may be starting your first job out of college, and when you’re presented with an insurance policy, you have the advantage of paying lower premiums. On the other hand, your parents have multiple dependents (aka you and your siblings) and will be charged a much higher amount. This leads to the question, ‘when is the best time to apply for life insurance’?
In truth, when to apply for life insurance is need-based and varies from person to person. Here are 5 factors to consider before you even think about getting life insurance:
1. Financial Stability
Ensure that you have an emergency fund before you apply for life insurance. Life insurance, mainly, is to financially aid your dependents in the event that an accident happens to you, such as a critical illness or accidental death. In the unfortunate instance that your home needs major repairs or your child needs to visit the hospital, you need an emergency fund to cover these because life insurance won’t.
You’re ready for life insurance if: you are already financially stable. Life insurance is to protect you and your family for the future, not the present.
2. Continuous Cash Flow
Annual premiums for life insurance can range from Php 35,000 to Php 55,000 and even higher if you opt for supplementary benefits. On average, that is a monthly payment of Php 3,750 (Php 45,000/12 months). Ensure you have a steady source of income or continuous cash flow to make the payments on your premium. Even better, if you’re decided on getting life insurance, include your insurance payments as part of your monthly budget.
You’re ready for life insurance if: you can afford regular payments for the long term. Before you apply for life insurance, make sure that you have the capacity to pay the annual premiums; you could lose coverage if you miss enough payments.
3. Medical History
Some types of life insurance, mostly those with major disease benefits, cover medical complications, so it’s best to apply for life insurance with medical coverage. Take note though that when you apply for life insurance, you will need to undergo a medical exam and will be asked of your family’s medical history. You may be charged with a higher premium, but remember that the payout you will receive will be much higher than the total amount you paid in premiums.
You’re ready for life insurance if: you know your family has a history of serious illnesses. As much as you don’t want to think about it, having a bad medical history increases your chances of experiencing complications as you get older, making it more expensive for you to get insurance later on.
Your habits come into play when deciding whether to apply for life insurance. One of the first questions asked when someone applies for life insurance is ‘do you smoke’? Smokers tend to pay higher premiums because smoking takes a major toll on your health and can lead to a variety of health problems.
At the same time, positive habits such as exercising regularly and having a proper diet can lower your insurance premiums. This is because you are less likely to get sick with an active lifestyle; however, despite feeling like Superman or Wonder Woman, you do not know what will happen to you decades down the road. If you have a stable emergency fund and can afford the monthly payments, consider getting life insurance and take advantage of the lower premiums for keeping a positive lifestyle.
You’re ready for life insurance if: you are more susceptible to diseases due to your negative habits (e.g. lung cancer for smokers). In the event that you are diagnosed with an illness covered by your insurance, receiving your payout decreases the stress of having to look for alternatives to cover medical costs.
This is the most obvious reason to get life insurance. If you have a number of people depending on you for financial support, life insurance is the best way to protect them. Assets, such as real estate and bond and stock certificates, are subject to estate tax. Before your assets can be distributed to your heirs, they would have to pay the estate tax. If you own a house worth Php 10 million, they would have to pay an estate tax of Php 1,215,000.
If you have life insurance, your dependents can use the payout to pay for estate tax. Even better, unlike assets such as real estate and other investments, the proceeds from life insurance are not subject to taxes. Life insurance, basically, is to protect your family in the future. Having dependents is one of the best reasons, if not the best, to get life insurance.
You’re ready for life insurance if: you have dependents who rely on your income. If you don’t have any yet, you can postpone getting life insurance and invest instead. However, take note that premiums only go up as you get older.
Ultimately, life insurance protects your loved ones from financial difficulties and ensures they are taken care of; however, it’s best to note that life insurance is mainly for your dependents, so before you apply for life insurance, ensure that you are also saving and investing for yourself. If you’re fresh out of college and living with your parents, you may not need life insurance yet.
There is an alternative for those who don’t want to go through all the procedures of getting the insurance but want to have life insurance guaranteed. Applying for a Prepaid Health Card can ensure that you get some of the benefits of a health plan that includes life insurance without the hassle of getting approved. Check our assortment of prepaid health cards, compare and select the best for your needs!
Whether or not you have decided now is the best time to get life insurance, it’s best to go ‘window shopping’ first before signing the papers. As with MoneyMax.ph, where you can compare different types of car insurance policies and personal loans, it’s best to compare and contrast life insurance from different providers before settling on one. Prices and coverage will vary depending on the policy, so it’s best to do your research before you sign the papers.