Sunday, October 23, 2016

Aya Laraya's 4th Talk by Sunlife: The Relevance of Insurance to a Person's Estate

Once again, I was invited by Mr. Arnel Bautista to the Sunlife personal finance series, which by the way is nearing its end. At this time though, we talked about the complexities of the consequences of death, particularly when it comes to finances and the estate. While it sounded pretty depressing, the topic was something Filipinos needed to know and discuss in detail to facilitate money matters related to this stage of human life.

According to Mr. Laraya of Pesos and, a person transmits properties upon his death. Usually families would quarrel and bicker on how to distribute the properties if there is no clear plan in doing so. We see families torn apart from the lack of foresight and planning that could have made things smoother for the estate. Hence, he emphasized the need to start early and plan ahead. Since a person has about a Php 13 million estate that can be exempted from estate tax, steps can be taken to ensure that the heirs of a deceased can maximize the amount and extent of properties that can be passed to them while minimizing tax liability. The speaker also recommended commencing legal acts and formalities to transfer the estate as opposed to illegal ones. He argued that the risk from resorting to tax evasion will only serve to increase tax liabilities in the form of surcharges and penalties.

Enter the need for insurance. I've always thought that Insurance was relevant only for healthcare needs and unexpected contingencies. At this seminar, I found that insurance can also be used to leverage the liquidity of an estate. According to the provisions of the National Internal Revenue Code, life insurance, if the estate is the beneficiary, is exempt from estate tax. The speaker posited that insurance may actually be used to pay for the taxes incurred by the estate while serving the dual function of indemnifying the heirs. Talk about being multipurpose! Furthermore, life insurance can easily be claimed provided that the beneficiaries present the certificate of full payment. Compare this to the illiquidity of bank accounts (provided under the law) pending the settlement of the estate. With life insurance, you can have the cash needed to advance the costs.

With these precepts in mind, there should be no need to resort to extralegal methods to achieve the purposes of tax avoidance. The beneficiaries can be rest assured that insurance will facilitate the distribution of properties.

Special thanks to Mr. Arnel Bautista and Sunlife Philippines Inc. for the invite.

The story in photos:

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