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Why Getting Covered Makes a Lot of Sense

August 27, 2012

 

 http://thepoc.net/thepoc-features/mukhang-pera/wealth-guidelines/16816-why-getting-covered-makes-a-lot-of-sense.html

 Monday, 27 August 2012 00:00 Edmund Lao

 

wrecked_car

 

 In the creation of wealth, we learned that the factors that help grow our wealth are  leverage, time, and compounding interest while taxation and inflation diminish its growth. If one applies the right principle of wealth building, he is certain to minimize negative factors and reach his financial goals.

 

What will happen to wealth if it is not protected? Definitely it will be subject to the risk of someone else taking it away from its owner under a worst case scenario.  With proper information, the wealth created can be preserved and  passed on from one generation to the other.  This way we can ensure that the next generation will be richer than the current one. As the Bible says, a good man leaves  inheritance to children’s children.

 

One way to preserve wealth is by using the financial tool called INSURANCE. When people see insurance agents, they tend to hide from them or buy the minimum coverage. They do not know that by doing so, they are doing a great disservice to their own families.

 

An insurance is a financial tool that takes care of the risk of an early or sudden demise of a bread winner. It is a leverage against risk. It is also a tool used to effect the transfer of wealth from the policy holder to his beneficiary. This will ensure that the family left behind will still be able to live the same comfortable life even if the provider is no longer around. In short, insurance is an instrument that protects one’s family from a massive loss of income. Just imagine, without proper insurance planning, two things will be bound to happen:

 

  • The family will be deep in debt.
  • Whatever properties left will be subject to estate tax. The consequence will be to sell the properties to pay the taxes. Wealth created has been eroded by estate tax.

Many do not appreciate this kind of instrument. They see this as an expense. I myself used to be unaware of its importance.  Later in life, I became well-informed enough to realize that insurance is an expense that buys us two things: peace of mind and our family’s financial future.

In the USA, insurance is a requirement and Americans see the need to own an insurance policy for their protection. In our country, most people buy insurance coverage for their cars but never for the owner who is also the driver. They forgot to protect their greatest asset and income generator: themselves. Most of the time, when they realize the need to get insurance coverage for themselves, they are already ineligible due to deteriorating health condition.

Let me share a short story.

In 2003, I learned about insurance and how it could benefit me. I lost no time to get covered.  I tried to share my enlightenment with a colleague.  I know my words fell on deaf ears for he didn’t take action.  I persevered, anyhow.  I knew he understood what I was trying to say but he was simply hard-headed. Years went by and one day in 2010, he called me to ask about insurance. It turned out he just met a car accident and was lucky to escape unharmed. During that accident, all he could think of was me, he said. It opened his eyes to the wisdom of what I had been telling him over and again. Since he was the sole breadwinner, he was certain his family would be in financial mess if he lost his life unexpectedly.     If he didn’t escape in one piece, he would  have failed as a provider to his family.

It took a brush with death to make him buy an insurance policy.

Back in 2003, I was attending the first personal finance seminar out of the prodding of my colleague. In the middle of the talk, someone approached the speaker. Judging from the facial reactions, the person came to bring bad news. True enough, itt turned out that one of the company’s members was shot dead by a hold-upper over a cell phone. In a simple twist of fate, the victim had just availed of a one million pesos insurance coverage days ago and had made his first monthly payment.

Sure, the bonanza in insurance money would not erase the grief of a family suffering from the loss of a loved one.  But after the mourning period comes the reality. Without insurance, what life would they look forward to? Insurance cushioned the impact of the loss of the breadwinner. The family was able to live the comfortable life they were used to and to prepare for the future.

What is the lesson to be learned here?

Always get protection when you do not need it because when you need it, it might not be available anymore.

 

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