How to Choose the Right Life Insurance for You [Guide for Filipinos]

Death is inevitable, but many Filipinos simply shrug this reality off and leave everything to fate and as devout Christians, to faith.

Bahala na  — and many keep dismissing one important aspect of personal finance and financial literacy, and that is — financial protection.

Perhaps, nothing sounds more sensible than saying that life is predictably unpredictable. And that justifies the need for it.

So, you have all the what-ifs preoccupying you right now, but there’s one thing that will surely give you a peace of mind, and that is — getting an insurance.

Don’t shake your head. This is not a sales talk.

I’ll just talk about choosing the best or the right life insurance policy for you while cutting out the technicality that comes unwantedly with it.

In a sociolinguistics class, I heard from my professor that it’s the language technicality that preserves the overt industry prestige. Consider the legal industry as an example.

Now as you read on, you’ll:

• understand the basics of insurance,
• learn about life insurance in particular, its general types, coverage and benefits, and common policy riders,
• explore its advantages and disadvantages (even the negative Filipino mindsets),
• discover the top life insurance providers in the Philippines,
• gain helpful tips on how to choose the best life insurance company and life insurance itself, and
• check other alternatives to life insurance

To get you onboard, there is also a bonus glossary of 30+ essential life insurance terms below.

So, let’s start this off with insurance itself in general.

Insurance — What It Is

What is an insurance? Generally, an insurance is a contract or legal agreement, as represented by a policy, between an insurer (insurance company) and an insured (individual or entity).

It entitles an insured to receive financial protection or monetary reimbursements from an insurer for losses under circumstances stipulated in a policy.

It can also be understood as an assurance against both expected and unexpected losses such as but not limited to deaths, hospitalizations, accidents, critical illnesses, and even property damages.

It requires an insured individual or entity to make regular payments of premiums in exchange for an insurance coverage.

Getting an insurance is part of protecting, one of the six components of financial literacy. The other five are earning, budgeting, saving, borrowing, and investing.

In many ways, insurance can also be considered a good investment. But it doesn’t seem to be a common perception among Filipinos.

In a 2021 BSP Financial Inclusion Survey, the share of adults with insurance declined to 17% from 23% in 2019. Inclusive of adults with PhilHealth, the percentage was at 48%.

Uptake of private insurance such as life insurance (16%) and microinsurance (13%) remained low as well.

While there has been a steady growth in insurance premium income over the past six years, the Philippine’s insurance penetration rate (premium volume as a share of GDP) also remained low and even dropped from 2.30% (2021Q1) to 1.98% (2022Q1).

How does an insurance work? Insurance works as simple as this:

• You buy an insurance policy based on your needs.
• You pay the premiums.
• You or your beneficiaries make a claim for any loss covered by the policy.
• You or your beneficiaries get paid by the insurer the sum assured.

What are the general types of insurance? There are two general types of insurance — life and non-life insurance.

• Life insurance ensures your life. You buy a life insurance policy for the financial security of your family and loved ones when you die. It normally comes with riders or add-ons such as for accelerated death benefits, critical and chronic illnesses, and permanent disabilities.
• Non-life insurance covers uncertainties other than death, hence also called a general insurance. It includes various insurance subtypes and products such as for health, automobiles or cars, businesses, homes, properties, and even travels.

I will not cover non-life insurance any further from here as I plan to write a separate article on it. I’ll rather focus on life insurance itself.

Life Insurance — Everything You Should Know

What is a life insurance? As discussed above, it is primarily for the benefit of the ones left after the death of the insured.

The sum to claim after the loss may be used by the beneficiaries to survive months or a few years of financial transition especially if the deceased is the sole breadwinner.

What are the general types of life insurance? Life insurance policies or plans fall into two general categories — term and permanent, and the difference is quite self-explanatory.

• Term Life Insurance covers a specific, pre-set period, e.g., 10, 20, or 30 years. If you die while the coverage is in force, your beneficiaries get the assured payout. If you don’t, then it simply expires and is gone unless converted.
• Permanent Life Insurance lasts your lifetime and thus, can be used to build wealth and accumulate cash value over time. It comes further with two subtypes — whole (guaranteed rates) and universal (flexible options) life insurance.

So which one is better — term life or permanent life insurance?

I’ll try to answer that later. But to tell you, it’s only you who can answer that depending on your needs and many other personal factors.

What does a life insurance policy normally cover (sample)? Life insurance policies may vary based on factors such as the insured age, needs, goals, and financial capacity — now and in the future.

While it is impossible for me to give you an exact and recommended insurance policy that best suits you and the factors mentioned, you may consider the sample that follows.

It’s a Cocolife’s 10-Pay Future Perfect 1, a permanent life insurance I paid for the last 10 years.

Its coverage and other benefits as indicated in the policy include:

• PHP300,000.00 on Maturity Date (January 30, 2053).I’ll get the amount on the given date if I am still alive, or in case of death prior to the policy’s maturity date, my three beneficiaries will receive the same amount.
• PHP300,000.00 Accidental Death and Dismemberment. An additional benefit will be paid to the beneficiaries if my death results from an accident on or before my 65th birthday. Also, if I sustain an injury which alone causes a loss specified, e.g., loss of sight of two eyes, loss of feet, etc., I will get paid either 50% or 100% of the face amount.
• PHP150,000.00 Terminal Illness Living Benefit.The insurance company shall advance half of the face amount if I get diagnosed with terminal illness that gives me 12 months to live.
• Waiver of Premiums Due to Disability if Policy Holder Becomes Totally Disabled Before January 30, 2023. All remaining premiums will be waived in case I become totally or permanently disabled on or before the end of the premium paying period or the policy anniversary date nearest my 60th birthday, if sooner.
• Cash Values Which Can Be Borrowed. My policy earns cash values which can be borrowed at a particular interest rate.

To give you a little background, I started paying the semi-annual (twice a year) premiums of PHP4,259.85 way back January 2013. That was when I was just 22.

I paid only PHP85,197 for a PHP300,000 worth of accidental (anytime) death benefit and possibly, an additional retirement fund if I would outlive the maturity date.

What are the common life insurance policy riders? Riders are optional add-on provisions and benefits that you may buy and add to your basic life insurance policy.

These include but not limited to:

• guaranteed insurability
• accidental death and dismemberment
• waiver of premium for disability
• family income benefit
• accelerated death
• child term
• long-term care
• return of premium
• critical and chronic illness
• convertible term
• paid-up additions

You may discuss your preferred life insurance riders with your agent, but expect that these come at extra costs.

What are the advantages (pros) of life insurance? Your biggest advantage in getting a life insurance — financial protection for your loved ones — outweighs the major disadvantage which is paying its premiums.

Apart from this, here are other advantages (pros) of a life insurance:

• Your life insurance may be particularly cheaper and more affordable than any other forms of insurance, i.e., if the main purpose is the financial security of your beneficiaries.
• Your beneficiaries may enjoy a tax-free sum as assured by the insurer.
• You may customize your life insurance with policy riders and premiums, i.e., monthly, quarterly, yearly payments, etc., based on your needs and payment capacity.
• You can take it as both savings and investment, and may enjoy it in your retirement or on its maturity.
• You will have a peace of mind and accept death, as well as other uncertainties of life, as inevitable.
• You can easily make comparisons and policy purchases these days.

What are the disadvantages (cons) of life insurance? As mentioned earlier, the major disadvantage is paying the premiums.

It takes years before a policy gets paid up. I got mine after 10 years of semi-annual premium payments, i.e., every January and July.

Other than this, these are the common disadvantages (cons):

• Your life insurance may cost you more, or you may no longer qualify, especially if you’re old, with health conditions, and lifestyle issues.
• If it’s a term insurance and you outlive it, you may not get any money back. The same goes if you stop paying your premiums.
• You may not really be the one to benefit from it, rather your loved ones or beneficiaries.
• You may not really have dependents or beneficiaries who need the death benefits.
• Your insurance agent may not really understand your needs and may just be after the sales commission.
• Your policy may be technically complicated that you won’t understand the terms and conditions by yourself.

What are the common negative mindsets about insurance? Low financial literacy is the most convenient reason for the slow growth of insurance industry in the Philippines.

And a possible breakdown of this is the negative mindsets that usually include:

• I cannot afford it. It is a luxury only rich people can afford.
• Its risk is just high, and it comes with unknown results and returns.
• I have many financial problems to address in the present. It’s not my priority to think about the future, death in particular.
• I still have the time, and it can wait.
• It’s a scam. It’s like giving free money to these companies that I cannot trust at all.
• I’m afraid these companies will get bankrupt very soon, and I’ll lose everything.
• It’s just a waste of money. I won’t make it through the payment terms.
• SSS, Pag-IBIG, and other benefits will suffice my death and retirement needs.
• Bahala na. Somebody will surely find ways for my funeral.
• It’s full of technical and complicated stuff. I don’t have time for it.

What are the top life insurance companies in the Philippines? The Philippine Insurance Commission is the government agency that issues operating licenses to insurance companies and implements prudent and progressive regulatory and supervisory policies.

It also releases rankings based on reports on their premium income, new business annual premium equivalent (NBAPE), net income, net worth, and total assets.

NBAPE, in particular, is computed as the sum of the value of regular premiums from products sold for a given year (or the initial annualized premiums) and 10% of single premiums written in the same year.

It is an international standard in measuring the life insurance industry sales performance in a given year.

Here are the latest top 10 life insurance companies in the Philippines based on their NBAPE:

[1] Pru Life Insurance Corporation of U.K. (Pru Life UK). It was incorporated and granted an operating license in the Philippines by the Insurance Commission in 1996. Its insurance products include insurance with investments, term insurance, health insurance, accidental and disability insurance, and PRULink Funds.

[2] Sun Life of Canada (Philippines), Inc. (Sun Life). In 1895 or three years before the Republic of the Philippines was officially founded, it was first introduced. In 2000, it went public with shares traded in the Philippine Stock Exchange (PSE). Currently, it offers a wide range of insurance, wealth, and asset management solutions.

[3] Philippine Axa Life Insurance Corporation (AXA). Established in 1999, it is a joint venture between the AXA Group, headquartered in France, GT Capital Holdings, Inc. (GT Capital), and Metropolitan Bank and Trust Company (Metrobank). It now offers a complete range of products for all its customers’ insurance and financial protection needs, including savings and investments, health plans, and income protection as well as general insurance.

[4] Allianz PNB Life Insurance, Inc. (Allianz PNB Life). It is among the major life insurers in the Philippines which began its operations as a subsidiary of Allianz Group in 2016. It is also a leading provider of variable life products, complemented by a full line of life protection offerings for individuals and institutions.

[5] BDO Life Assurance Company, Inc. (BDO Life). It is a subsidiary of BDO Unibank, the country’s largest bank to date, that offers a diverse pool of life insurance products suitable to the needs of its clients. It provides protection, education, savings, retirement and estate planning solutions.

[6] FWD Life Insurance Corporation (FWD). It started its operations in the country in 2014 with two insurance products — All Set and Set for Life. It is focused on making the insurance journey simpler, faster, and smoother, with innovative propositions and easy-to-understand products, supported by digital technology.

[7] BPI-AIA Life Assurance Corporation (BPI- AIA). It is a strategic alliance between two leading financial companies in the Philippines — AIA Philippines Life and General Insurance Company, Inc. (AIA Philippines) and Bank of the Philippine Islands (BPI).

[8] Manufacturer Life Insurance Co. (Philippines), Inc. (Manulife). In 1901, it sold the first Manulife policy in the Philippines and received its license six years later. It is a subsidiary of Manulife Financial Corporation, one of the largest insurance companies in the world.

[9] Manulife-China Bank Life Assurance Corporation (Manulife China Bank). It is a strategic alliance between Manulife Philippines and China Banking Corporation (China Bank). It provides a wide range of innovative insurance products and services to customers of China Bank as well as the bank’s thrift arm, China Bank Savings (CBS).

[10] AIA Philippines Life and General Insurance Company, Inc. (AIA Philippines). It has over 70 years in insurance business. Its parent company, AIA, was founded in Asia and its operations span across 18 markets in the Asia-Pacific region.

You may check the official website of the Insurance Commission for other rankings. Also, other online resources use the premium income as their basis.

What are the factors to consider when choosing the best insurance company? While the list above serves as just a reference or a starting point, it does not necessarily mean that the best life insurance company for you should be on the list.

You must consider all insurance companies that exist on the database of the Insurance Commission and the factors that follow:

• License to Operate. It should be your top consideration. Make sure that the insurance company you’re dealing with is licensed and registered with the Insurance Commission. You can check it on the official website of the commission itself.
• Solid Company Background. An insurance company that has been operating for such a long time already must have proven its stability, trust, and reputation. You may check the ‘about us’ section of the company’s website for its history.
• Strong Financial Performance. In terms of this, there are five financial reports to consider — premium income, assets, net worth, net income, and new business annual premium equivalent (NBAPE).
• Products and Coverage. Most insurance companies offer various products. For life insurance, there are two basic options — term and permanent. Choose which better suits your needs and goals.
• Policy Costs. Check if the policy prices and premiums are justifiable and affordable, or possibly within your financial capacity.
• Customer Satisfaction. You may search on Google and social media platforms like Facebook for insurance company reviews. You may also ask people in your personal and professional networks about their experiences with the company.
• Claims Settlement. You should also find out how the company pays insurance claims. It gives a peace of mind if you know that your insurance company does not give too much stress or headache when it comes to this.
• Accessibility. You should consider the ease of doing business with the company. Considerations may include online application processes, excellent customer support, payment channels, and app or website for monitoring premium payments, among others.

10 Tips on How to Choose the Right Life Insurance Plan

Now that you’ve learned the basics of life insurance, you’re ready to choose one that best fits you.

While I highly recommend that you discuss your insurance needs and preferences with your financial advisor or insurance agent, you might want to jump into narrowing down your options first with these helpful tips.

[1] Start while you’re still young and healthy. Life insurance policies get more expensive as you age and as your physical body declines.

If you’re just in your 20s, single or married, with or without dependents, and you’re reading this, consider getting a life insurance policy as something that will complete your long-term financial blueprint.

[2] Assess your current financial situation and clarify your life insurance goals. Put your dependents on top of all your considerations and think about what you currently have for them should worst cases happen.

You might want to consider answering these questions:

• How many dependents do you have?
• How financially dependent are they on you?
• Which funds — emergency funds, savings, pension and provident funds, work insurance, businesses, and other investments — are readily available for them?
• What financial obligations — loans and mortgages, funeral and estate settlement costs, medical expenses, and other debts — would they need to fulfill after your death?
• What are your plans for retirement?
• Do you really need a life insurance?

[3] Calculate how much life insurance coverage you need. There is no single answer to the question about how much your life insurance should really be.

You might want to try available life insurance calculators online, or simply try these guide questions:

• How much is your current income?
• How much money (annual living expenses) would your dependents need for the financial transition?
• How much would they need for all other financial obligations (including, for example, the education of your dependents)?
• How long would they need it?
• How much would the expected annual inflation rate be?
• What other non-monetary support, e.g., childcare, would they need?

[4] Choose your life insurance policy type. Start choosing between the two general types — term life or permanent life insurance. Then, narrow your choices down to other subtypes and include your preferred policy riders.

Consider a term life insurance if you need a financial protection just for a specific period of time, e.g., 20-year term while your kids are still studying.

Not only less expensive, it is also a great choice to supplement a permanent insurance during high-need years.

On the other hand, consider a permanent life insurance if you think you need one for as long as you live or through retirement.

Most policies under this type come with a cash value component which may be borrowed and act as an investment vehicle.

[5] Consider what will affect your life insurance rate. Among all the factors, there are two which greatly affect your rate — health and age.

You are more likely to be healthier when you’re younger, and that translates to less risks to insure.

[6] Compare various life insurance companies and their offers. You may refer to the factors mentioned above for you to choose the best life insurance companies.

In choosing insurance plans, don’t just focus on premiums. You might want to ask help from insurance agents who hold multiple accounts across insurance companies. Try requesting quotes for your comparison.

[7] Discuss your life insurance application with a trusted financial advisor or agent. As you finalize your decision about purchasing an insurance policy, the next thing to do is to look for a financial advisor or insurance agent.

Your chosen insurance company may also assign one for you. All your questions should be answered by the advisor or agent who will walk you through the application process.

[8] Be truthful enough with all information you declare in your application. Insurance companies may conduct a client investigation to confirm and validate the information that you provide in your application.

This is part of the underwriting process which normally takes weeks.

Equally important, you don’t want future claims to get disqualified for not being honest with your information, particularly your medical records.

[9] Read and understand the policy carefully. As you get approved and covered, you will be given a copy of your life insurance policy.

Or prior to the underwriting and approval, you should have read the terms and conditions yourself. Make sure you understand all details. You may also ask clarifications, especially about the technical terms, from your agent.

[10] Pay your premiums and evaluate your life insurance needs regularly. Congratulations! You are now insured. It doesn’t stop here though.

You should pay your premiums regularly to avoid policy lapse. You should be aware of the grace period that your insurer provides for your premium payments.

Particularly if what you availed is a term life insurance, your goals might change over time, and you might consider converting it to a permanent life policy. Check your policy to see if this is allowed.

What are other alternatives to life insurance? You may not have a life insurance policy simply because you don’t want to get one, or you do not qualify at all.

Either way, it does not mean that you have no other means of financial protection as there are other alternatives to life insurance, however may offer less.

Some of them are:

• other insurance plans, e.g., accidental death insurance
• regular savings and other investments
• prepaid funeral plans, e.g., St. Peter Plans
• mandatory pension and provident funds, e.g., with SSS and Pag-IBIG
• voluntary pension and provident funds, e.g., SSS WISP Plus and Pag-IBIG MP2 Savings

30+ Essential Life Insurance Terms

Insurance and investments normally come with overwhelming technical terms, or jargons, that may raise the eyebrows especially of the ones starting out.

Don’t you worry because you won’t be taking any quiz later unless you’re doing a research for a simple pre-seminar game. So, here are the terms:

Accelerated Death Benefit Rider. It is a policy add-on that pays out a portion of the death benefit when the insured is diagnosed with a terminal illness.

Accidental Death and Dismemberment Rider. It is a policy add-on that pays out up to the full amount of death benefit for accident resulting in death or loss of particular body parts.

Cash Value. It is the amount of money that builds up, as it earns a modest interest rate, over time in a permanent life insurance policy.

Death Benefit. It is the sum of money paid to the nominee in case of death of the life assured during the policy period.

Dividend. It is the return of a portion of the premiums paid usually on a whole life participating policy.

Effective Date. It is the date when the life insurance coverage begins.

Evidence of Insurability. It is the record of the applicant’s historical health events used by the insurance company to verify good health.

Face Value. It is the total amount of money the insurance company has agreed to pay out when the insured person dies.

Free-Look Period. It is a window period, usually 15 or 30 days, in which the insured person can still cancel and surrender the policy with refunds and without charges.

Grace Period. It is the length of time extending the due date when the insured person is still allowed to make a late payment before the policy gets cancelled.

Insured. It is the person whose life is covered by an insurance.

Insurer. It is the life insurance company.

Lapsed Policy. It describes a policy ended or terminated due to non-payment of premiums.

Life Assured. It is the insured person whose death is covered by a life insurance (also Insured).

Life Expectancy. It is the probability of the applicant to live to a certain age based on a particular mortality table.

Maturity. It is the exact date when the insurance company pays the sum assured as stipulated in the policy.

Nominee. It is the beneficiary nominated to receive the policy proceeds after an unfortunate incident (also Beneficiary).

Non-forfeiture Clause. It is a special provision in a policy stipulating that the policyholder will receive a partial or full refunds of premiums paid if the policy lapses due to missed premium payments.

Policy. It is the legal contract, stating all the terms of insurance, between the policyholder and the insurance company.

Policyholder. It is the person who owns a life insurance policy from an insurance company.

Policy Tenure. It is the duration for which the policy provides life insurance coverage.

Premium. It is the periodic payment made to the insurance company in exchange for the coverage.

Revival Period. It is the span of time afforded by the insurance company during which the policyholder can reactivate a lapsed policy.

Rider. It is an optional add-on or provision at an additional cost to expand the coverage or benefits of the life insurance.

Standard Risk. It is the classification of an applicant who fits the standards on which the normal premium rates are based.

Suicide Clause. It is a common provision that allows an insurance company to withhold the death benefit payout if death is caused by suicide, normally just within the first few years of policy.

Sum Assured. It is the guaranteed amount of money the nominee or beneficiary will receive in case of unfortunate death of the life assured.

Surrender Value. It is the actual amount of money a policyholder will receive upon voluntarily withdrawing all of its cash value before death or the maturity date.

Underwriting. It is the process, usually in weeks, of assessing the amount of risk or coverage cost the applicant presents to the insurance company.

Variable Life. It is a permanent life insurance policy with an investment component, usually in mutual funds.

Variable-Universal Life. It is a type of universal life insurance that comes with fluctuating premiums and a cash value component that gains interest over time.

Waiver of Premium Rider. It is a policy add-on that waives the premium payments if the policyholder becomes critically ill, seriously injured, or physically impaired.

Quick Disclaimer: All tips, top picks, and recommendations in this article, however well-researched, informative, and practical, do not necessarily constitute a professional or expert advice. You are thus encouraged to do further research and confirmations, make informed financial decisions on your own, and even seek guidance from your financial advisor if you have.