Dear Investor Juan,
I have a question about insurance. I can't decide which of the two is a better option for my husband:
Option 1.Term life insurance for 2 million coverage with premiums in the table below
Option 2: BPI's Get Started savings account with life insurance (5x your adb maxium of 2 million). My husband has 100,000 at present which function also as our emergency fund. I'm thaninking of putting in addition 300k so that my husbands coverage will be 2 million.
Do you think its better to just do option 1 and invest 300k in uitf? or choose option 2 meaning total saving 400k with 2 million life insurance,at the same time it will funtion as our emergency fund?
Please excuse my grammar and spelling as I have just given birth two days ago and in a hurry to write this as I would like to email you asap so to help me decide which option is better.
Thanks,
Maxine
Dear Maxine,
Thanks for your email and the very useful information that you have provided us.
The first thing I did was review the details and conditions for BPI's Get Started account. Everything seems to be above-board--it does offer free life insurance with no strings attached. The only possible drawbacks that I see are that only depositors who are 15 to 70 years old are entitled to free insurance and the minimum monthly balance of 25,000 pesos for ATM accounts (75,000 for passbook) is higher than other kinds of accounts, but these are not deal breakers, in my opinion. Also, like other savings accounts Get Started pays interest, albeit at a paltry 0.25%, but I'm sure other banks offer around the same rate.
Thanks for sharing your insurance quotation, it's really helpful especially for people who don't have any idea how much life insurance costs in the Philippines. While the annual premiums are not very high, they are also not negligible. So based on your options (which you formulated correctly, by the way), to get a 2 million peso insurance coverage on the first year, you can either pay 7,900 to an insurer or maintain a 400,000 deposit in a Get Started account. I understand your hesitation in choosing Option 2--keeping 400,000 in a savings account seems to be a waste since it can possibly earn more in an equity fund? But if you can justify keeping 400,000 as an emergency fund--which to me is completely understandable, especially if it's for your entire household--parking the amount in an account that provides extra benefits makes a lot of sense.
How much more value is Get Started providing anyway? Using your insurance quotes, maintaining a 400,000 deposit in the account earns 0.25% interest and insurance that is worth 7,900 for the first year. Which means that your deposit would effectively be earning 0.25% + 7,900/400,000 = 2.225% in the first year. Given the interest rate climate nowadays, that rate is comparable to yields on T-bills and time deposit accounts--but with Get Started you don't lose liquidity, which is a necessary feature of an emergency fund. So yeah, Option 2, most definitely.
For other readers who think 400,000 is too high for an emergency fund, just figure out the amount that is appropriate to you and deposit that in a Get Started account.
Finally, I make these recommendations based on the limited information that I have. If anyone knows comparable benefits offered by other banks, please do share the information with us.