In a previous article, I talked about the importance of having a sound estate plan in securing your family’s future, not only in terms of material needs, but also in order to ensure peace after you leave them for the afterlife. Now, I am here to discuss one of the most important, if not the most important tools in estate planning: life insurance.
Several years ago, I used to think that all life insurance agents are just out to get people to buy their product, which they cannot even enjoy during their lifetime. For me, life insurance was just another unnecessary expense that will further diminish my hard-earned money in addition to my contributions for my social security, PAG-IBIG, Philhealth, and those darn taxes. I was even annoyed how these agents refer to themselves as ‘financial advisors’ when in truth and in fact; all they are are but salesmen. Hence, whenever, a financial advisor would contact me in order to talk about my ‘future,’ I avoided them like the plague!
However, when I began learning about estate planning in order to include it in my law practice, I discovered and was truly convinced that life insurance is indeed very important and that 21st century insurance agents, at least the ones I know, are real financial advisors in the truest sense. As is often said in the insurance industry: “Life Insurance is the only necessity that you can purchase today when you do not need it and something that you cannot purchase in the future when you need it the most.” In fact, it is indispensable to sound estate planning and personal finance in general. Now why would I say such a thing? Here are some of the reasons:
- Estate Tax. We all know that taxes are a pain in the ass (Especially for men because they keep their wallets in their back pockets!) and would therefore do anything to legally avoid paying them. Imagine, if you leave behind an estate worth at least ten million pesos (P10,000,000.00), then your heirs would have to pay a whopping minimum of P1,215,000.00 plus 20% of anything in excess of P10,000,000.00 in estate taxes! Now what if the only property you left was the ancestral or family home worth P10 million? Where will your heirs get the money to pay the estate tax, which, by the way, should be paid within six months from the time of your death? The only solution left is for them is to sell their beloved ancestral house and lot and usually at a loss. That would be so sad! However, ample life insurance can quickly solve this problem for just a fraction of the amount of estate tax due that your heirs would need to pay. How? By first applying the life insurance proceeds to the payment of the estate tax due. In this way, your heir/s would be able to receive their inheritance wholly intact.
- Equalization of Inheritance. Contrary to what most people think, Filipinos do not have the absolute liberty to dispose of their properties as they deem fit. One example of this is in the area of wills and succession. The law reserves a certain portion of our estate to those who are referred to as ‘compulsory heirs.’ This reserved portion is called their ‘legitime.’ There are instances however that some people would want to give more to an heir, especially if they have illegitimate children because under the Civil Code of the Philippines, the same are only entitled to one-half of the legitime of the legitimate children. One of the ways a testator can equalize the share of his illegitimate children is by bequeathing to them a bigger share from the free disposable portion of his estate. The problem with that strategy however is that it can and will cause feelings of hurt and resentment in the hearts of the surviving legitimate family because in addition to the betrayal, their share in the estate of their deceased parent is even lessened due to the presence of illegitimate children; or when the free disposable portion is insufficient. But there is a better way, and that is through life insurance. By naming the illegitimate children as beneficiaries, they will be able to receive more than what the law provides for them, provided that only a sufficient and fair amount is given to them in such a way that they will not receive a larger inheritance than the legitimate children.
These are just some of the reasons why life insurance is an indispensable tool in estate planning. To be sure, there are more but those will be discussed in later articles. For now, suffice it to say that life insurance is definitely not a want or a luxury, but certainly a necessity for those who are responsible enough to take care of the needs of their loved ones even in their permanent absence. If you would want to know more about how estate planning works, consult a trusted lawyer, accountant or financial planner.