You often hear that life insurance can be a valuable "financial tool" to protect your loved ones. And while you understand its importance, you still find yourself reluctant to sign up for it. You may have heard some unsettling stories or need clarification on how life insurance works in the first place. 

Whatever your hesitation, this guide can help address your concerns.

What is life insurance?

Life insurance is financial protection to help your family when you pass away. When you sign up for life insurance, you agree to pay a certain amount, known as premiums, to the insurance company. Premiums may be paid monthly, quarterly, or annually, depending on the policy.

In exchange for your premiums, the insurance company promises to give the person you choose (called the beneficiary) a cash benefit or a lump sum after you pass away.

The cash benefit is available as long as you're up to date with your premium payments and within the life insurance coverage period.

Do I need life insurance if I am single and not a parent?

Yes, even single people can benefit from a life insurance policy. If you have debts or medical care and end-of-life expenses, life insurance can ensure these are paid off so your loved ones don't have to bear the burden. Some life insurance policies offer living benefits (see benefits of life insurance below), which means you can use a part of the insurance plan's death benefit while you're still alive. If you are planning to have dependents, getting a life insurance policy now at a lower premium rate can help you save money in the long run.

I have life insurance from my employer. Isn't that enough

Life insurance in group policies usually offers limited coverage. Assess your family's financial needs and check if your coverage is sufficient for your loved ones' future. If it lacks comprehensive protection, it’s good to learn about the different life insurance policies available to find the right plan for you.

What are the types of life insurance?

The life insurance policies you typically come across fall under the following types:

Term life insurance

Coverage under term life insurance usually lasts for a specific time, like 10, 20, or 30 years. Your beneficiary receives the cash benefit if you unexpectedly pass away during that period. Since the coverage is on limited time, the premiums are lower than other types of life insurance.

Whole life insurance 

Unlike term life insurance, whole life insurance coverage can last your lifetime or until you're 100. Although you pay higher premiums for this type, the amount often remains the same as when you first signed up.

Whole life insurance provides your beneficiary a guaranteed amount (the death benefit). Depending on the policy's conditions, it can accumulate cash value, which earns interest. While living, you can partly withdraw or borrow against your policy's cash value, a reason some people consider life insurance as savings or an alternate option for financial emergencies.

However, read the terms and conditions of cash value carefully. Cash value is separate from the death benefit, which means your beneficiary cannot access it if the unexpected happens. Also, using the cash value may reduce the death benefit.

Variable unit-linked insurance

With variable unit-linked (VUL) insurance, you and the insurance company agree to invest a portion of your premiums in investment options like stocks, bonds, or money market funds. This feature offers the potential to grow your money further because returns can increase depending on market performance. People looking to boost their retirement savings often check out VUL because of the cash value's potential to increase. 

Because these investments are tied to the market, the value changes based on how well those investments are doing. If the stock market performs poorly, your cash value may grow less than expected. Before signing up for a VUL insurance plan, understand the risks involved in investing and whether you're willing to take or accept that risk.

Can I use the benefits of life Insurance while living? 

Yes, if the life insurance plan comes with cash value, allowing policyholders to withdraw or use a portion of it. Some use the cash value to supplement their emergency fund, especially during unforeseen medical crises. Other life insurance includes hospitalization benefits that can help cover treatment or room and board. 

When choosing life insurance plan, pick one that addresses one of your long-term financial goals. 

For instance, family providers who want to grow their retirement income may find AIA Future Builder attractive. They get access to global investment funds and can leave the day-to-day investment management to the expert fund managers of AIA. The plan comes with life insurance, and the insured’s beneficiary can receive financial support from the death benefit or cash value, whichever is higher.

What other personal risks should I consider getting protected for?

Accidents, disabilities, and illnesses are personal risks that require hospitalization, quickly draining your emergency fund. Insurance can ensure you always have funds for financial emergencies during a difficult time.

Critical illness 

Cancer, heart disease, and stroke count as three of the major medical conditions that critical illness insurance can cover. All three are the leading causes of death in the Philippines, based on the latest statistics. Almost 20% percent of the total deaths in the country were due to coronary heart disease, which often results in a heart attack.

Accidents on the road

More than 1.3 million people lose their lives every year in road accidents worldwide, World Health Organization (WHO) reports. More than half of these accidents involve road users like pedestrians, cyclists, and motorcycle riders. In the Philippines, road accidents have become the leading cause of death among Filipinos 15-29 years old.

Disability

The latest National Disability Prevalence Survey (NDPS) revealed that around 12% of Filipinos aged 15 and older experience severe disability, with that figure rising to 32% for Filipinos aged 60 and above.

Deaths caused by natural disasters

The Philippine Statistics Authority (PSA) reported the country experienced 82 meteorological disasters, such as typhoons, tropical cyclones, and southwest monsoons, and led to 457 deaths in 2022 alone. 

Hardworking life insurance like AIA All-In-One can cover these personal risks. Premiums under this plan can go as low as ₱100 a day, and it provides cash benefits for the following circumstances:

• Diagnosis of one of the 10 covered major critical illnesses 
• Disability occurring before you're 65
• Accidental death, including in public transit or during natural disasters
• Untimely death

How much does life insurance cost? 

Premiums paid for life insurance products vary based on coverage, riders, and the policyholder's age and health, among other factors. The premium may increase if you add a rider or optional add-on. A rider gives you more coverage for risks not included in the base plan, such as critical illness or disability.

The Philippine Life Insurance Association (PLIA) says life insurance coverage ideally equals up to seven times your annual gross income. But ask an AIA Life Planner to help you assess life insurance policies based on the premiums you can afford.

What are the other perks of life insurance?

Beneficiaries who claim the death benefit need not worry about paying taxes because it is not considered an income. This tax exemption goes a long way in supporting your loved ones further when they experience the loss of your income.     

Preventive healthcare has become a top concern among AIA Philippines customers. Many of its life insurance plans come with AIA Vitality, a science-backed wellness program that rewards healthy choices.

How does life insurance work with AIA Vitality? It provides points for achieving health goals like doctor's checkups or workouts. You can improve your AIA Vitality status from Bronze to Platinum level and get up to 50% additional coverage on your insurance plan.

Why is life insurance important?

Life insurance can help you better manage your finances and plan for the future. It's a convenient way to make sure you're prepared for any unexpected situations that might come up. You get that peace of mind, knowing your loved ones are cared for financially if something unexpected happens. 

In addition to the death benefit, life insurance with living benefits can significantly reduce financial anxiety. It gives you more room to maneuver to pursue other financial objectives while maintaining a sense of security.   

Reach out to an AIA Life Planner if you want to know more about how life insurance works and what it can do to help you reach your financial goals.