Question:
Ano ang dapat unahin ng breadwinner. life insurance o emergency funds?
Answer:
Kung ikaw ay breadwinner, ang dapat unahin ay life insurance with no investment component.
Ang tamang sequence ay
- life protection (if you die to soon)
- emergency fund (if you have other emergencies)
- medium-term investment (if you have plans, e.g. children education)
- long term investment (if you live too long, e.g. retirement)
Kaya kung uunahin ang life insurance, get pure insurance like term. Kung mayroon ka nang emergency fund, you can consider investments.
Ang emergency fund ay ideally 3 to 6 months of expenses. Kung ang expenses mo ay P15k/month, dapat P45k to P90k.
Ang term insurance ay napakamura lamang; para sa 30 year old o below, it is possible to get P1m coverage for a level premium of less than P6k annually for 18 years!
May term life insurance din na may tinatawag na premium-deposit-fund o PDF. Ang PDF ay investment na approved na investment vehicle ng Insurance Commission na may non-negative growth at withdrawable anytime, even o the first year, kaya suitable as an emergency fund. Ang investment guidelines ng IC ang naga-guarantee na non-negative growth ng PDF.
Look at magnitudes, and actual numbers.
For a breadwinner earning P15k/mo,
- the emergency funds is probably P45k to P60k (3 to six months income or expenses).
- the income replacement is 5 – 10 years of income or P15k x 12 x 5 to 10 years = P900k to P1.8m
If he can save 20% or P3k/month:
To get term life insurance for P1m, kung 30 and below, he needs less than P6k annual or about 2 months of savings per year.
To get to the desired emergency fund would require 15 months to 30 months. (P3k x 14 = P45k, P3k x 30 = P90k)
Kung uunahin ang life insurance, he can have P1m life insurance immediately and have the emergency funds in 18 to 36 months.
Kung uunahin ang emergency funds, he will be able to get life insurance after 15 to 36 months.
Just think about this:
HIndi ba ang pinakamasakit na emergency sa pamilya ay ang death of the breadwinner?
What if he dies too soon?
Who will take care of the family?
What will they spend?
The death of the breadwinner is the single most catastrophic emergency for a family.
It will be ironic if one prepares for minor emergencies but not prepare for that one major emergency that every family dreads?
Good advisers and practically all financial planners will recommend term insurance sa mga breadwinner na wala pang life insurance at emergency funds.
Term life insurance can be so inexpensive, it is almost criminal not to get one to protect your family, especially if you are the main breadwinner.
Term insurance is recommended especially sa walang emergency funds, sa maraming utang, sa mga hindi pa handang mag-invest.
