Many of us think that life insurance is not important. In fact, Philippines has only 1.75% penetration rate of life insurance. Penetration rates calculated as the ratio of total gross premiums over gross domestic product. It means that few Filipinos are insured and most of us are under insured. You may ask yourself and look around with your loved ones, friends and relatives, and you will see that most of us do not have life insurance. Life insurance has many benefits. It can cover a person if risks of life happen like illness, disability, old age and death. With regard to this writing, I will share with you how life insurance can preserve your assets if death comes in the future.
We all work hard for our family to have a better life and along the way, we can accumulate assets like having your own house and lot, condo units, cars, motorcyles, savings in the bank, stock market shares, businesses, jewelry, your expensive collections, and many more. While having these assets named for you and if death comes, your assets will not be easily transferred to your heirs. Your family needs to settle the Estate Tax which the government will surely take before your heirs can get their shares of your assets. Two things are inevitable in life, these are Death and Taxes. If you will not prepare, it will be a burden to your family.
Estate Tax has its different rates depending on your Net Estate:
How to compute the Estate Tax that your heirs will need to pay in the Philippine government if death comes?
Let’s say that a person has Ph15,000,000 Net Estate. This is how your heir needs to prepare to settle the Estate Tax so that your assets will be transferred to them.
You can see that Ph15,000,000 is on the bracket of over Ph10,000,000 therefore the tax will be Ph1,215,000.00 plus 20% of the excess over of Ph10,000,000. The excess will be Ph5,000,000 and the 20% of that is Ph1,000,000. Therefore the total Estate Tax that the heirs should pay is Ph2,215,000(Ph1,215,000 + Ph1,000,000). Before the heirs can get the Net Estate of Ph15,000,000 they need to settle first Ph2,215,000. What if all of his money is in the banks which the heirs cannot withdraw? Money in the bank is frozen if the owner dies, it can be withdrawn only after the estate tax is settled. It will be a big problem for the heirs to come up right away with that amount because if they will not settle the Estate Tax after a period of time, it will have a penalty and worst if the heir cannot settle the Estate Tax, the government can own the assets.
Life insurance can address the Estate Tax because it is not taxable as long as it is designated as irrevocable beneficiary. It can preserve your assets in the future. In the computation, the heirs should have at least Ph2,215,000 ready cash if death comes in the future of the owner of the assets for the heirs to transfer the net estate to them.
For you to preserve your assets,the owner of the assets can insure himself now at least Ph2,215,000 to prepare for the estate tax if death comes soon or in the future. He just needs to set aside every year of 5%-10% of his income for him to get a life insurance coverage for him to have funds that can be given to his beneficiary if death comes.
Here how it goes if the owner of the assets did not have life insurance:
Here how it goes if the owner has a proper life insurance coverage just to pay for the Estate Tax if death comes:
It clearly shows that by insuring yourself properly, your family that you will be leaving if death comes will not have any problem on paying the Estate Tax. It is way cheaper and you can save more money if you insure yourself properly. You can imagine if the owner dies without life insurance, where would the family get the Ph2,215,000 to pay for the estate tax because all of the assets are being frozen,even if they have money in the bank, they cannot just withdraw it without paying the Estate Tax first. Even if they have money which is not owned by the person who died, it will be still a burden to pay for the Estate Tax. As seen in the sample computation, Ph2,215,000 is not a small amount of money. It is wiser to prepare as well for the Estate Tax by creating a fund that will give your family the money that they will need on the time that they need it most which life insurance can provide.
Thanks for reading my blog. If you want to learn more about the benefits of life insurance on Estate Tax preparation, you may reach me.