Are extreme sports like car racing bad for insurance?

I’d like to live as a poor man with lots of money.    Pablo Picasso

NANJING, China  A positive factor in the less-gloomy global economic situation is the surprising strength of China’s economy, despite their government’s attempts to moderate the rapid growth, which they deem “overheated.”

Our ASEAN region is also another source of good news for the world, even as the US, Japan and fun-loving European nations like Greece, Spain, Portugal and France also seem to be economically weak. Asia is indeed the future!

I hope President Noynoy Aquino and other leaders can learn from China’s ongoing government efforts to curb the runaway real-estate speculative binge by the local rich and foreign investors. They believe  correctly  that too-fast and irrational increases in realty prices make homes unaffordable to the masses and the middle class. Realty speculations also siphon off a country’s limited capital away from factories or other businesses more beneficial to the economy. A real-estate bubble is unhealthy for long-term economic progress. Even the governments of Hong Kong and Singapore do implement policies, which seek to cool any dangerous realty bubbles.

Despite the stronger economies and higher per-capita incomes in both Malaysia and Thailand, a Malaysian-Chinese tycoon asked me, “Why are Philippine realty prices way too high compared to Malaysia and also higher than those in Thailand?”

Aside from thinking of bold policies to dampen the speculative fever and possible bubble in Philippine real estate, I suggest we decongest Metro Manila, upgrade mass transport and develop the rural regions so that people need not crowd themselves only in Makati, The Fort, Ortigas Center, or downtown Manila.

Thanks to all Philippine STAR readers for sending personal finance and insurance questions to this Question & Answer series with the Philippines’ biggest, most profitable and oldest life insurance giant  Insular Life. Our advocacy seeks to promote savings as a national habit in the Philippines because not everyone needs to be an entrepreneur to be financially independent and rich, but saving money is a must for anyone who wants to be well-off in a legitimate and honorable way. Here are some readers’ queries and the expert advice of Insular Life executives:

Question 1

Is it okay to avail of bank loans now?

Janine M. del Rosario, 35 years old, housewife, Baguio City

Mine is not an insurance question, but since you described Insular Life as “the biggest, most profitable and oldest homegrown life insurance giant,” I want to ask their bosses how they assess the economic outlook of the Philippines this year? Banks are granting low-interest home loans. Should we get loans now?

Answer 1

Conventional market wisdom states that we only have to look to the stock market to gain insight into the economic prospects of the economy. The simple explanation to this is that investors, both local and foreign, tend to have more confidence in “buying” shares if they believe that the economy will be able to generate enough activities to help businesses become more profitable going forward. The Philippine Stock Market as measured by the Phisix has recently established new historical high on strong “buys” from local and foreign investors.

The cost of a loan should just be one of many considerations whenever we consider taking one out. More important would be to ask ourselves first on what we intend to do with the loan proceeds. Would this be treated as a windfall and consumed? Would the proceeds be used in a business venture? To retire a more expensive existing loan?

A loan is a loan and needs to be paid back. If there is no compelling economic reason to take one now, then it may be more prudent not to. 

ALIJEFFTY C. GONZALES,  Insular Life Senior Assistant Vice President & Business Development Officer

Question 2 

Will mountain biking, car racing, etc., make insurance costlier?

Yolanda V. Crisostomo, 27 years old, Alabang

My boyfriend is into extreme sports like biking on mountain trails, racing fancy cars, etc. Is it true that if in the future we get married and I decide to buy life insurance for our future family (thanks to your columns on the importance of life insurance), will his type of daring sports affect our premiums to be paid? I want to convince my boyfriend to switch to safer sports.

Answer 2

As a general rule, extra premiums are applicable to activities that expose an applicant for insurance to risks to which others who do not engage in such activities are not exposed. Thus, it is possible that biking on mountain trails and car racing may be subject to extra premiums, depending on the frequency and nature of engagement in such sports. We usually ask the proposed insured to accomplish a questionnaire to determine whether the risk exposure is significantly higher than those who do not engage in such sports to be able to determine if extra premiums are applicable.

MONA LISA B. DELA CRUZ,

Insular Life Executive Vice President & Head of Administrative Operations Group

Question 3

Can a bank really specify which life insurer a borrower must get?

Pam J. Salazar, 27 years old, General Santos City

My elder brother and his wife are buying a house with a bank loan. This bank requires them to buy life insurance from their sister firm and I think it’s a so-called term insurance or something. Can a bank borrower be compelled to buy from the bank’s recommendation only? Don’t bank clients have the freedom to choose other firms like Insular Life and choose the type of policy better or bigger than what they require? And is life insurance only for the rich? 

Answer 3

In my opinion I believe the client should be afforded the prerogative to choose whom he/she wants to insure with and what type of insurance policy he/she prefers. In the example you cited, the reason why banks require life insurance to be assigned to a loan is to ensure that the entire loan will be paid in case the borrower dies before the term of the loan ends. It is also beneficial to the borrower’s family because they need not worry about continuing the obligation since the insurance coverage frees them from such a burden. This being the case, the bank’s interest would be fully protected by any appropriate life insurance company coming from a sound insurance company. Since you mentioned that the bank has a company engaged in insurance, I think the bank just wants to optimize its business synergy with its sister firm through cross selling. 

In the end, it is that bank which defines the terms and conditions for granting loans, and the borrower may have no recourse but to comply. However, if a borrower strongly feels he should have the right as well as freedom to choose his insurer, he can always inquire from other banks that do not have an insurance company in its corporate family or who would not impose such a condition to insure exclusively with their insurance firm.

Life insurance is definitely not only for the rich. It is for every responsible income earner or breadwinner who wishes to have financial security for his family against the unexpected risks of life. For this reason it does not matter how wealthy you are for as long as there are people who depend on you financially. In fact, when it comes to the urgency of being insured, those who cannot afford to lose their income or those who are not of great means should prioritize having life insurance. 

Imagine a family of five with one breadwinner earning a modest income. Imagine further that because of limited means, the family has not been able to accumulate material assets. If something happens to the breadwinner, his family or those who depend on him would be in a horrible situation financially. People who are in this situation need life insurance for wealth creation and income continuation. On the other hand, affluent families also have a need for life insurance though their needs may be more of wealth management and preservation.

JESUS ALFONSO G. HOFILENA, Insular Life Executive Vice President & Head, Sales & Marketing Group

Question 4

Does life insurance cover Ondoy-like calamities and accidents?

Nadelyn Lopez-Peralta, 35 years old, housewife, Interior Designer, Cebu

This Question & Answer series is very interesting. It educates the public on the importance of having a life insurance. Here’s my question: Will life insurance compensate clients who die in natural disasters like Ondoy? Are natural calamities included in accidents doubling benefits? Also, is there such a case as buying too much life insurance?

Answer 4

Yes. Life insurance will pay benefits in case of death due to natural disasters. The basic life insurance policy will pay the amount of insurance in case of death due to any cause, except under a few conditions. One exception is death due to suicide within the first two years from the effective date of the policy. Another exception is if there was concealment or misrepresentation when the insurance policy was applied for, and such concealment or misrepresentation is discovered within the first two years from effective date of the policy.

On your second question, if an accident rider was also purchased together with the basic life insurance policy, and the amount of insurance of the accident rider is equal to the amount of insurance of the basic life insurance, then the benefit may be doubled, depending on the circumstances of death. The accident rider will be payable in case of death resulting directly and solely from external, violent, and accidental means, including those occurring during natural disasters.  

MONA LISA B. DELA CRUZ, Insular Life Executive Vice President & Head of Administrative Operations Group

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