Shopping for an insurance policy

Q: I've been receiving proposals for years from insurance agents and only started looking at them closely. I noticed that one offer for a term insurance is much cheaper. I hesitate to call the agent as my query may be seen as strong interest to buy. Can you help me? Should I take term insurance because of the cost?

A: Life insurance is one of those things you need to have to protect your family in the future. “The main reason to purchase life insurance is to protect you and the people who rely on you (your dependents) against disaster,” wrote the authors of The Citibank Guide to Building Personal Wealth. “The most obvious problem is if you die before old age. If this happens, your dependents are likely to be in financial trouble, but adequate life insurance would pay out a lump sum of money to ease their distress.”

Today there are many life insurance products being offered that it may seem a bit confusing to distinguish one from another. Basically, there are just two types (whole and term), but they come in various kinds with different features and benefits.

• Whole life insurance pays out benefits to the beneficiaries upon the insured's death, whenever it may be. It gives you insurance coverage for the duration of your whole life, thus the term. Premiums may be paid for life, or for a limited number of years. It may be participating or nonparticipating—participating means you get a share in the profits of the company, and this amounts to dividends. Whole life insurance has a cash value, and policy owners may avail of policy loans.

Some whole life insurance policies are termed variable universal life insurance, which allows policyholders to determine where premiums will be invested and have a share in the gains of that investment. Others are endowment policies which give you or your beneficiaries added cash benefits at a certain time in the future. Still other kinds of whole life insurance merge the benefits of health insurance in the package. You can look at all these as forced savings and investments.

• Term life insurance is also referred to as “pure” life insurance. It offers insurance coverage for a fixed term, say 10 or 25 years. According to The Citibank Guide to Building Personal Wealth, “There is no savings element or any guaranteed payout unless you die while you are covered.” This means that if your term life insurance is for 25 years, your beneficiaries won't get anything if you die on the 26th year, unless you have renewed your insurance. “This makes term insurance much cheaper than other varieties, and for most people it is a good option to choose, provided that you appreciate that the premiums you pay are for insurance only—there is no investment element.”

Term insurance comes in many kinds, as written in The Citibank Guide to Building Personal Wealth. In “level term insurance,” the payout sum does not change throughout the term. In “decreasing term insurance,” the payout sum decreases over the term. “Increasing term insurance” is its exact opposite, where the payout sum increases over the term to guard against inflation. “Convertible term insurance” makes it possible for the policyholder to convert the policy from term to whole life at any time, regardless of health conditions. “Renewable term” allows the policyholder to renew the policy at the end of the term without regard for his or her state of health.

Now which is better? Term insurance is indeed cheaper, but there are not much benefits as compared to whole life insurance. However, if you already have or are planning to have health insurance and a separate investment plan designed to meet your financial goals, you may not need the added benefits of whole life insurance. Premiums for whole life insurance can be expensive, so if money is tight, get term insurance instead.

Over time though, insurance gets more expensive as the prospective policyholder advances in age. And sometimes it may get harder to have one's life insurance policy application approved as one gets older due to poor health. It would be wise to get life insurance as soon as you start a family or have other family members dependent on you.

There are three key principles to follow when considering buying life insurance coverage, according to The Citibank Guide to Building Personal Wealth:

1. Insure against important risks. The book says, “The money you spend on life insurance should go to ensuring that you have adequate protection against these kinds of major risk” – your early death, major medical bills, and a serious disability. By insuring against these, your family will be better equipped to handle the financial responsibility in those instances.
2. Compare prices. “The cheapest cover is not necessarily the best: you must make sure that the insurance company is financially sound and has a good reputation for making prompt payments on legitimate claims.” Shop around.
3. Purchase broad coverage. Get a policy that insures against more than just a few serious diseases or types of accidental death. “For the major risks, buy insurance that covers as wide a number of scenarios as possible.”

Source: Inquirer.net

Zero percent interest promos: Are they a good deal?

Q: My husband and I are excited to move in to our own place this summer. We will just be renting a townhouse, but we have all these ideas on how to furnish and decorate our unit. We need to buy a lot of appliances and furniture, and to us, the zero percent interest promotion offered by our credit card looks really look good. But I wonder - is it really a better deal? – Leah

A: Congratulations, Leah, on this new exciting chapter in your life! It is indeed exciting to move in to a new home and we have no doubt you and your husband have many fresh ideas on how your townhouse unit will be decorated.

Moving to a new house do come with many expenses - aside from the deposit for rental and advance rental fee, there are utilities to take care of, fees for the movers, and yes, furniture and appliances.

Thanks to credit cards, you can buy all the appliances you need - now - even if you don't have enough cash. And even if you do have the cash, no need to carry all that with you - just present the credit card, swipe, and you can go home with all the furniture and appliances you need, as well as want - whether it's a new air conditioner for your bedroom, a new dining set, a new sofa, even a new TV and microwave oven altogether.

With your credit card, you may choose to pay in full, when the next bill arrives, or arrange to do so in installments from terms as short as 3 months to as long as 24 months. An interest charge is usually added to your bill if you pay in installments, and this fee could range from 1% to 3% add-on per month. We suggest you check with your credit card issuer to verify.

So when you see a 0% offer, it does seem like a deal too good to be true. Citibank credit cards regularly offer 0% installment packages for a wide range of purchases - not just appliances or furniture, but even for gym membership fees, health and wellness treatments, jewelries, watches as well as clothes.

Before you take advantage, study the details of the offer. Is the 0% payment term only for three months? Will you be able to pay within this time? If not, it may be best to sign up for a longer term at low rates so you can better manage your payments.

For those who have the cash ready, charging to your credit card is a good way to hang on to your money a little longer, and earn loyalty points as well if your credit card company offers a rewards program.

Speaking of rewards, Citibank has an ongoing partnership with a number of stores including home and appliance stores which allows cardholders to use their earned points as payment for their purchase (up to as much as 50 percent of the tag price). If you are spending on a budget, this should help lower the cost of your total purchase.

To guide you on your new life together as you go hunting for new furniture and appliances for your home, here are some tips you may find useful:

1.Before buying a big-ticket item, discuss the matter first with your spouse. Since you're going to live with what you will end up buying, agree on the item you want to have at home - should it be a no-frost refrigerator, for instance, or a regular one? A queen-size bed or a king-sized one? A 1-horsepower air conditioner or a 1.5-horsepower unit? The worst thing to do is to buy an item ahead and surprise your spouse; some spouses would resent not being consulted and balk at having to pay for a surprise item.

2.Canvas among several stores to find the best deal. Go to at least three stores and see which one offers the best price. Ask also about delivery and installation fees.

3.Check if the manufacturer offers after-sales support. Make sure to fill out a warranty card and promptly mail it to the manufacturer. Keep a list of accredited service centers so you can easily bring the unit for repair if needed.

4.Keep your receipts, charge slips, warranty cards and operating manuals on file. If you need to have the unit repaired and it's under warranty, you have to show the receipt to the service center. And of course, refer to the operating manual for immediate troubleshooting at home.

5.Keep your furniture and appliances in good condition. Follow the manufacturer's guide on when and how to clean and maintain the item. This will prolong the life of your furniture or appliance.

Happy nesting!

Source: Inquirer.net

Can I afford to stop working?

Q: I have been wanting to spend more time with my family and start a small business to continue to earn some income. Every time I feel I am ready to quit work, something comes up that will make me hesitate and then I will postpone my plans. Right now, I think I have enough money saved up to cover for unforeseen expenses. But how do I really know if my savings are enough? Is there a good formula to check against? - Susan

A: Many people who have been working for a long time are looking forward to when they can ditch their usual routine of braving the traffic to get to work at 8 a.m. each day. Whether you call it burnout or mid-life crisis or just a welcome change - such a move is appealing.

Getting out of the rat race to stay at home or go into business will need a lot of preparation though, and this is why many choose to continue working. Quitting work means the loss of a steady and guaranteed income stream so before taking the big leap, one must ensure that he has enough saved to help him cover his cost of living until he is ready to go to work again or go into business.

How much money do you need to have to say that you have enough saved, affording you to quit work? There is no exact figure for this as it depends on your personal lifestyle. Some experts say a fund equivalent to two years' worth of expenses is sufficient. Others would say a fund that will generate interest income in the same amount as your present salary would be the rule.

That would seem like a tall order. Before going any further, ask yourself if quitting work is what you really want to do. Weigh the advantages and disadvantages of working vs. staying home. If you still think that resigning from work is for you, determine the proper timetable for doing it. If you haven't built up enough savings yet, maybe it would be best to postpone that move for a few more years in order for you to increase your savings.

Spend some time analyzing your current financial situation and do a personal balance sheet. Do an "inventory" of your assets and list down their value, from bank deposits and investments to receivables, properties, jewelry and the like. How much are your total assets? Next, write down all your liabilities (credit card debt, mortgage, and other payables) and deduct them from your total assets. You will arrive at your net worth, which may be positive or negative. This figure is how much you are worth right now. Is this amount enough for you at this current stage in your life? If not, maybe you should remain in the workforce for now. But if it is enough, then that is a good sign.

If you are decided on giving up your work next year, here are a few tips on how to make your fund last longer to sustain your lifestyle for many years:


1. Invest your money in investments such as bonds and government securities that may give you a steady regular income higher than that offered by bank deposits. Bear in mind that bonds and government securities are not entirely risk free. Talk to a financial expert at an investment company or your bank to see if bond funds are suited to your risk appetite.

2. Consider living a simpler lifestyle. Some people even sell their homes and move to a smaller one as they move to retirement or semi-retirement. They also move to a place where the cost of living may be lower. Look at your lifestyle and identify things you can let go of
(example: annual trip abroad, eating out weekly, or an extra car) in order to make your fund last longer.

3. Make a budget. This will be your guide to spending to ensure that you don't burn up your fund fast. Aim to spend within your means.

4. Find other sources of income. Staying home doesn't mean not earning at all. Think of an activity that you enjoy doing and see if you can earn income from it. If it is something you like doing, and you can do it at home at leisure, it won't be like work. Examples of such
activities are dog breeding, growing orchids or bonsais, or baking. Another option is to do consultancies which you can do at your own time.

5. Continue saving. As you find work you can do from home, continue saving at least 10 percent of your income, and investing this. Diversify your investments.

6. Let the family in on the whole effort. Explain to your family that you need to live simply so you can continue staying at home with them. Get their cooperation, then as a family, find ways to bond and have recreation without having to spend so much.

The decision to resign from work is a big move that will change your life. Make sure you have thought things over and planned for the future before taking the plunge. We wish you the best.

Source:business.inquirer.net

Easy ways to trick yourself into saving

Q: I know I should be saving money for my future, but I never get to do so. It's not because I don't want to. I want to save but can't seem to do it. How can I turn a new leaf this year and save money? I know this will be good for me in the long run. - Glenn

A: Being aware of the need to save money for the future is a good start. We all need to set aside money for future needs, especially for the time when we enter retirement and cannot work anymore. Those who have put up a business may continue to enjoy the profits from that business even in old age. But what about those who work by rendering a
service to a company as an employee, or to many entities as a professional or consultant? This is just one of the reasons why we need to save.

We also need to have a ready pot of money for those times when a family member gets sick or loses a job, or when calamity strikes and you need to have repairs done to your home, much like what many people realized after typhoons Ondoy and Pepeng flooded many areas of our country in 2009.

Saving for the future consists of two parts: setting aside money and limiting spending to give room for more money to be set aside.

We agree with you that saving is hard to do. It takes discipline to do so. However, that does not mean that it is impossible to do. Take little steps by tricking yourself into saving. Here are some ways you can do it:

1. Open a new bank account for your savings. This should be separate from your payroll account or from your checking account where you draw funds to finance your normal day-to-day expenses. Then as soon as you have a new account, link this up with your payroll account via Internet, mobile and phone banking. The new accounts clerk at your bank can help you with this step.

2. Set up an automatic transfer of funds every pay day from your payroll account to your savings account if your bank has this facility. If not, do the money transfer yourself via Internet, phone or mobile banking. Remember to do this on your pay day so that before you even withdraw any money from your paycheck for your monthly expenses, you have already set aside some money (ideally 10 percent or more) for savings.

3. Open an investment account. This may be a time deposit account or a share in mutual fund or unit investment trust fund or even an account with a stock brokerage. Whenever you have enough money in your savings account, transfer some money to an investment account of your choice so it will have the opportunity to earn more money for you. Bear in mind that some investments come with some risk (example: stocks or equities) so be sure to read and understand all the relevant issuer's or fund information sheet, risk disclaimer and disclosure statement and discuss the particulars of the said investment with the sales intermediary. Do not invest in the investment instrument unless you fully understand and are willing to assume the risks associated with it.

4. At the end of each day, collect all loose change from your wallet and pockets and put them in a piggy bank. This old technique still works. Don't spend this amount; instead, when the piggy bank is full, break it and deposit all the cash in your savings account. You may be surprised that a little money set aside each day can become a big amount come year end.

5. Get all those freebies available. Some stores give rebates or discounts on your next purchase. Keep those coupons and use them on your next store visit. A number of credit cards also offer rewards points for purchases. You may exchange your points for an item you need in the rewards catalog, or opt to use your points to pay for up to half of the purchase price-for a limited time, Citibank has this facility open to cardholders when shopping at stores or eating at restaurants.

6. Annualize small regular expenses. If you are a coffee addict and pick up a cup of java at a coffee shop every working day, multiply your coffee expense by 5 to get the weekly amount, then multiply this by 52 to get the annual amount. This is how much you spend on coffee every year. Then multiply this amount by at least 2 percent (conservative time deposit rate) and see how much you could have saved and earned over the same period if you gave up coffee this way. Those with a cigarette habit may also want to do this. Once you know your annual expense for these items, commit to save this money instead-good for your health and good for your pocket!

7. Pay your bills online or via mobile or phone banking. Save on money for parking, and save on time too. An added plus: chances are you will not be late anymore in paying your bills, thus saving you late payment fees and extra finance charges.

Saving money takes discipline. Keep your eye on your goal and take these little steps to grow your savings.

Source:business.inquirer.net

Still paying for your holiday purchases?

Q: It's February and I'm still paying for all the gifts I bought over the holidays, not to mention the Christmas get-together dinners with friends. I can't believe I have racked up a debt of P30,000. This is more than what I earn in a month. How can I pay off this bill? - Maya

A: You are not alone, Maya. Other people are also scratching and shaking their heads at how they have spent so much for gifts and parties during the last holiday season. For some of them, they only learned how much debt they have accumulated when the bills arrived in January.

Overwhelming as it may seem, it is not a hopeless situation. The fact that you are aware of the need to do something about it is a good start. Others may just shrug it off and default on their payments, not knowing that the consequences will be much worse.

Below we share specific tips on how you can handle a debt like this and make sure any future debt will be manageable.

1. Review all your bills. Did you charge your expenses to your credit card? Make sure all entries are valid and that you did make those purchases. In case there is a dubious entry, find out if you made that purchase; if not, call the credit card company hotline right away. Most hotlines are open 24 hours a day, 7 days a week.

2. Draft a payment plan. If paying off the entire bill in one go may be difficult, as you said this is more than your monthly pay, break up the total bill in smaller "monthly bills." See how much you can afford to pay each month taking into account your day-to-day expenses. Credit cards usually indicate a minimum amount due that you need to settle to keep your account current. Make sure you pay that and on time, to maintain a good credit history. If you can afford to pay more, do so. This way, you will be able to settle your balance in a shorter period.

3. How about an installment plan? Some credit card companies allow clients to convert their balance into an installment plan. Cardholders prefer this so they have a better idea of how much they need to pay every time, and also because they know when the debt will be fully paid. Citi cardholders can avail this simply by calling the 24-hour customer hotline. Check with your credit card company if this option appeals to you.

4. Own more than one credit card? If you have more than one credit card, and carry substantial balances in both, consider consolidating all in one account for easier tracking and payment. Balance conversion offers by credit card companies give attractive low rates so make sure you ask around. You may also consider switching to a card that offers cash rebates, such as the Citi Cashback Card.

5. Take out a loan, if need be. If, after making a payment plan, you realize it simply is not doable or it will take you two years or more to pay off the entire debt with interest, you may want to consider taking out a loan from your employer or the GSIS or SSS, or a bank. The advantage of this is that you free up the credit line of your card for emergencies, you will enjoy lower interest rates, and you will know the length of time it will take you to pay off your debt. Citibank Savings offers personal loans that can be released in as soon as two days.

6. If you earn any extra income or receive any cash windfall (for instance, bonus, gift or a cash raffle prize), use it to pay off your debt. This will greatly help you bring down your balance, and pay your obligation more quickly.

7. Have the whole family in on this goal of helping you get out of debt. In thinking of where and how to spend time together, go for budget-friendly activities and shop wisely.

And to make sure you don't find yourself in the same situation next year, this early, make a list of people you intend to give gifts to in December for the holiday season. Set a clear budget for each gift and make a note to yourself not to go beyond it. Throughout the year, you will find items that will suit the recipient and fit your budget. Make little purchases throughout the year to spread out your spending so you won't be tempted to charge everything in December and receive another big credit card bill in January. Good luck!

Source:business.inquirer.net