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The issue boils down to this one final question: Is it beneficial to get Variable Unit Investment Life (VUL) for children? There is no definite yes or no answer since financial planning is an art and not an exact science so financial advisors have varying answers. Our answer however is a resounding YES and here is why:
3 Reasons Why You Should Insure Your Children
1. To provide critical illness protection for your children – Children’s critical illness is the second most claimed condition covered by a critical illness cover policy behind cancer at 56% of all claims, children’s critical illness accounted for 12% of claims which placed it even above heart attacks at 9% (Source: Ageas Protect claims statistics released April 2014)
Critical Illness in a VUL can cover yourself and your loved ones in the event of unforseen circumstances such as the diagnosis of a serious or critical illness that would result in loss of an income stream to the family over a prolonged period of time.
Although your children do not contribute to the household income it is important to consider the costs incurred if a dependant was to fall critically ill. You may have to take unpaid leave or possibly even leave your job to care for your child in these circumstances. Therefore it is important to have provisions in place should the worst happen.
2. To cover for funeral, burial, medical expense as well as estate taxes of assets under the name of their children (donated by their parents during their lifetime). – Contrary to popular belief life insurance is needed by children to cover for funeral and burial expenses as well as the medical expenses of the child if child who suddenly dies due to illness or accident. A good funeral may cost around P100k-P1M not to mention the cost of the cemetery plot which may cost millions if the parents want privacy and exclusivity.
The unpaid medical expenses prior to death can sky rocket to millions as well. Some say that the chance of death or illness occurring is low precisely the reason why insurance is cheaper for children since risk for children is lower.
Further prudent estate planning necessitates that all future estate taxes will be paid off. If their parents have transferred assets to the name of their children through a donation an estate tax will be paid upon the death of the child for assets donated and titled to them. Life insurance will insure the parents can pay off estate taxes conveniently.
3. If the parents are completely covered, the parents may get insurance and investment while the children are still healthy and insurable. – Parents who have excess cash normally subscribe to the idea that VULs are necessary to protect their children from critical illnesses and provide immediate funds to pay for funeral, medical and estate taxes. Thus, it is wise to insure your children at a young age where they are 99% insurable and not when they are older which reduces their chances of being insured. It is not unusual for individuals to be denied of certain coverages once as they age. An example is a fellow advisor in her early 30s who wanted to apply critical illness cover but had a hard time being accepted due to certain lumps in her breast. Getting life insurance can be a good gift to your children that they can continue to pay once they have jobs in the future especially if parents are already covered and have excess funds.
Parents who got VULs for their children did not make wrong purchase decisions as long as the charges, advantages and disadvantages have been properly explained. Same as saying that we cannot tell parents not to buy a luxury watch and instead invest it when they have the money to buy for the P500,000 ROLEX watch. In fact, getting a VUL for your child might even be a better idea than buying a ROLEX watch but who are we to say they made a wrong purchase decision when they have excess money to buy the ROLEX anyway?
IN SUMMARY
You see VULs and insurance do not just apply to adults. Kids also need VULs for critical illness, funeral, burial and medical expenses. VULs can accumulate funds for college education. If a payor’s rider is attached it can be a fall back position to pay college education cost should the parents die or be disabled especially when the parents are already insured. Children can greatly benefit from VULs if properly executed through a well qualified financial advisor.
We urge Ms. Salve Duplito and the rest of ANC On The Money to ask second opinions from knowledgeable insurance advisors because it is their profession. Further Salve should know that in selecting funds you not only look at the fund management cost but the net return of investment contrary to what she said. There are several funds who charge fund management fees below 1.5% but the NET returns are not as good or as high as we think it should be. Fund management fees should not be the basis of investing but how much the investment has grown or will grow after a year net of the management charges. We also urge the Insurance Commission , the association of life insurance companies through PLIA and the association of financial advisors through our LUAP board to look into this case.
Further she said that VULs are harder to monitor which is far from the truth. VULs can be viewed online through the company customer portals. Further an annual report shows how the funds are managed by the fund manager itemizing the income and expenses of the fund. We were wondering why she said that it is hard to monitor VULs than Mutual Funds?
She went off topic when she criticized the compensation of financial advisors as overpaid which is far from the truth. Our commitment to our clients last a lifetime (or even several generations) of service and consultation working even during a weekend or a holiday just to make our clients happy. And no amount of compensation can compensate us financial advisors who leave our high paying fixed salary jobs just to help spread financial literacy and even pay off an expensive dinner, drive to Alabang from QC for a client who will not invest with us. Imagine spending for people’s coffee or dinner and providing financial advise just to end up being rejected.
Salve should have known the concept of High Risk, High Return by now. We risked our high paying job for an unsecured income all to help improve the financial literacy of the Filipino people. If Salve likes our compensation, she should be a life insurance advisor and see how hard it is. Our clients contact us 24/7. Not to mention the sweat, frustration and rejection while going out of the office in the heat of the sun.
It seems to me that she is implying that financial advisors are ripping off people. But all jobs that do not give a fixed salary provide high commissions (such as a property sold by a real estate broker worth P300,000 yields them a 5% commission of P15,000 while a VUL worth P300,000 payable for 10 years will only give the financial advisor an FYC much much lower than P15,000 not to mention less the car amortization and gas to meet the client 3 times for first meeting, closing and policy delivery as well as the cost of that coffee or dinner). So are the financial advisors going to earn millions faster than their clients? Definitely not especially if you factor all the after sales service expenses we will be doing for them. We are the ONLY PROFESSION that promises to serve for years and even generations without asking anything more in return yet Salve doesn’t see our efforts because you she is confined in the box of her studio.
Clearly her intent in the video was not anymore to inform about VULs but to also degrade the very profession helping the show On The Money as if she is the highest authority in the field of personal finance by looking down at the financial advisors from the life insurance industry. We believe Salve is doing well in her job but it doesn’t give her the license to look down at the financial advisors who are doing their best to uplift the profession. Bad apples/financial advisors in the life insurance industry must be reported to the Insurance Commission to prevent damage on the reputation of our profession. Respect begets respect. Salve, you are a tv personality and you should stick to where you are good at – talking about how to use money wisely and not talking about how financial advisors should conduct their practice. As much as we respect your profession, we hope that you will also respect ours. We support your show, we encourage our clients to watch your show, we spend time to be guests for your show, isn’t it too much to ask a little bit of mutual respect? (and a little more research so you don’t mislead the public)
(P.S. we don’t normally write articles in this harsh tone but we were greatly offended by the harshness of the video of Salve to us financial advisor. We hope you understand our reaction. We just love our profession that much that we don’t want other people to look down on us. The best way to approach bad financial advisors is to report them to the proper authorities not to destroy the image of financial advisors publicly on TV.)
WE HOPE THIS REACHES HER AND HOPEFULLY MORE PEOPLE WILL KNOW THE TRUTH.
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(image source: On The Money, https://www.youtube.com/watch?v=X_aa_xh2KQU)
THE FINANCEPH FINANCIAL ADVISORY TEAM
