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 Sense.com, 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:

Sunlife: an afternoon with Mr. Aya Laraya on the importance of managing money and debt

Once again, Sunlife Philippines Inc. extended an invitation to attend a talk on money management, hosted by Mr. Aya Laraya, an investment and finance guru. The topic for the afternoon was about debt and the proper attitude toward it. I'm not usually beholden to crippling amounts of debt.  Nevertheless, I took the talk as an opportunity to learn that debt can be used as an instrument to increase one's financial standing and potential.

Debt simply means: the use of other people's money, usually for a fee. However, not all debt is supposed to be considered bad or given a negative connotation. There are good ones such as business receivables, credit, and collateral which are usually used in the ordinary course of business. Furthermore,  equity investment such as IPO's and partnership shares can be used to generate working capital for the operation of an enterprise. Thirdly, there are also investment instruments such as bonds, stocks, and deposit substitutes which are intangible investment instruments for the purpose of generating wealth.

While good debt is taken advantage of to boost income, there are also forms of debt that can debilitate productivity. These are in the forms of bad debt. Bad debt is generally used to finance consumer spending and short term gratification such as luxury items and non-essentials.

According to Mr. Laraya, a good informal rule for controlling the amount you borrow is to use a month's salary. Furthermore, you can also tell your credit card provider to decrease the credit limit in order to curb the temptation to spend more. Lastly, using the debt to fund more productive ventures is a better way to reconsider consumer spending.

 I also learned about good informal rules in gauging loan amounts. In business loans, a good rule to follow is to borrow not more than 50% of owner's equity. While in housing, having 35% of income amortization is the limit for monthly payments.

Also, there are 3 ideas which can be used to ask whether a person should enter into debt. One is measuring how much one owns. The second is the size of the debt; and the third is how much a person can pay.

Lastly, in order to gain freedom from debt, a person must do three things:
1.Eliminate the credit card as a means of quick cash.
2. Create a payment plan in negotiating debt.
3. Switch to more efficient means of living.

Debt is truly a powerful thing, whether for its good or bad aspects. Albert Einstein truly nailed the concept of debt when he said that the most powerful force in the world is compound interest.