Insured, not covered

Read this first. Everything below is education, not advice, and not an offer or contract of insurance. Every peso figure here is an illustration invented to show a method — not a quotation, not a promise, not a prediction of what you would pay or receive. What you actually qualify for is decided by a policy contract and by underwriting, never by a guide. Take the arithmetic. Leave the numbers behind.

Why “insured” and “covered” are different things

Plenty of people are insured. Fewer are covered.

Insured means a policy exists with your name on it. Covered means that if the thing happens, the money that arrives is enough to do the job you bought it for. These are not the same condition, and almost nobody checks the second one, because checking it requires a number — and most people have never been shown how to build one.

Here is the failure, stated plainly. A household loses its earner. A cheque arrives. It clears the funeral, it clears a few months of groceries, and then it is gone. The loan is still there. The tuition is still due in June. The family was insured the whole time. It was never covered.

The gap between insured and covered is arithmetic — not a matter of picking a better company or a cleverer product. It is subtraction: what the loss would cost, minus what you already hold. Whatever is left is your gap.

Understand first. Then do the math.

The four jobs insurance does — and the one most Filipinos accidentally buy

“Insurance” is not one product. It is four tools for four different failures. Knowing which tool does which job is most of the battle, because a plan that is excellent at one job can be useless at another, and the brochure will not tell you which one you are holding.

i. Life cover — if you die. Pays a lump sum to the people you name. It replaces the money you brought home and settles what you leave behind. Matters most if anyone depends on your income, or if you carry debt.

ii. Critical illness cover — if you fall seriously ill. Pays on diagnosis — cancer, stroke, heart attack — while you are very much alive. It buys treatment, and it buys the time away from work that treatment demands. Matters most if a year without earning would break your finances.

iii. Disability and income cover — if you cannot work again. The one people plan for least and fear most. You survive; your earning does not. It replaces income over time rather than in one payment. Matters most if your income depends on your body or your hands.

iv. Savings and education plans — whatever happens. A fund that keeps building, and completes itself if something goes wrong. Genuinely useful. But it belongs on top of protection, never instead of it.

Now the accident. The common Philippine outcome is a single savings-linked plan bought young — often the first financial product a person ever owns — doing a little of all four jobs and not enough of any one of them. It is not a bad product. It is the wrong proportion.

The mechanism is worth understanding, because it is not a trick. In a savings-linked plan your premium splits: part buys the insurance charge, part goes into a fund. The fund is why the plan feels like an asset. The split is why the protection is small. You are paying for two things out of one budget, and the thing that gets squeezed is the part that only matters on the worst day of your life.

So the question to ask of any plan you already own is not “is this good?” It is: how much of what I pay is buying protection, and how much is buying a fund? The number is in your policy documents. Ask for it in writing.

Working out your own number

Four components. Add them up. Then subtract what you already have.

The four components

A. The support you would stop giving. What you put into the household each month, multiplied by twelve, multiplied by the number of years that support is still needed. Weight it by how much of the load is really yours — if you and a partner split it evenly, count your half.

monthly support × 12 × years still needed

B. What is still owed. Debt does not die with you. A housing loan, a business loan, a motorcycle amortisation, a card balance — these become claims against your estate, which means they become your family's problem. Use the outstanding balance, not the original amount.

outstanding balance

C. The bills that arrive at once. Funeral, hospital settlement, estate taxes, the first few months while everything is frozen. Money a family needs in weeks, not years. Use a fixed allowance for this — it does not scale with income the way the others do.

fixed allowance

D. The schooling you meant to fund. Counted separately and on purpose. Education is the first thing families give up when money tightens, and the hardest thing to restart. Count it per child, for the children you have actually promised.

cost per child × number of children

A worked example

The Ramos household — an illustration. Not a real family, and not a quotation.

Dennis is 38. He takes home roughly ₱52,000 a month and is the household's main earner. About ₱24,000 of that goes into the household — groceries, rent, allowances, his mother's medicines. His youngest is six, so he judges that support needs to continue for about twelve more years. There is ₱680,000 left on the housing loan. Two children he intends to put through college.

That is not the amount he needs to buy. It is the amount the loss would cost. The next step is subtraction.

Dennis already holds a group life benefit through his employer of about one year's salary — ₱624,000 — and an old individual policy with a sum assured of ₱500,000.

₱7,636,000 − ₱624,000 − ₱500,000 = ₱6,512,000

That last figure is his actual gap. It is the only number in this whole exercise that is about him rather than about insurance.

The other two numbers

Life cover is sized from what you give. Illness and disability are sized from what you earn — because when you are diagnosed, the household loses your entire income while its expenses go up. Dependant-based arithmetic misses this completely, which is why so many people are adequately covered for death and barely covered for illness.

Critical illness, as a starting point: about two years of income, to cover the period when treatment and recovery keep you out of work. > ₱52,000 × 24 months = ₱1,248,000 — and that is the earnings gap only. Treatment > costs sit on top of it.

Disability, as a starting point: about five years of income. > ₱52,000 × 12 × 5 = ₱3,120,000

Again: illustrations. The multipliers are conventions, not laws. Argue with them. If you think your household could absorb one year out of work rather than two, change the number and watch it move. That is the point of doing it this way — every figure traces back to an assumption you can inspect and disagree with.

What moves the number

Five things change the answer more than anything else. Check each one before you accept any figure, including one of mine.

Dependants. Not how many people you love — how many people would have a financial problem. A working spouse changes the number more than a child does. A parent whose maintenance medication you pay for is a dependant even though nobody calls them one.

Debt. Rising debt raises your number even when nothing else in your life changed. This works in both directions: pay down the housing loan and your protection requirement falls with it. Sometimes the correct financial move is to clear a balance, not to buy a policy.

Existing cover. Every peso of sum assured you already hold is a peso off the gap. Find your old policies. Read the sum assured — the actual sum assured, not the fund value, not the “total benefit” on the marketing sheet. If you cannot tell which is which, that in itself is worth a phone call to whoever sold it to you.

Employer benefits. Group life is real cover and you should count it. But understand the mechanism: it belongs to the job, not to you. Resign, get retrenched, or retire, and it usually ends within days. Cover that disappears when your income disappears is exactly backwards, so count it — and do not build on it.

SSS and GSIS. If you are an SSS member, qualified beneficiaries may receive a death benefit, paid either as a monthly pension or as a lump sum depending on how many monthly contributions were posted. The amount depends on your credited years of service and your average salary credit. GSIS runs a separate scheme for government employees. Two things are true of both: they are worth counting, and they were never designed to replace a household income. Do not estimate these — pull your own record from SSS or GSIS and use the real figure. The rules and amounts change; the guide you are reading does not update itself.

Also worth knowing: your number is not permanent. It moves when a child is born, when a loan is signed, when a loan is finished, when income steps up, when a marriage ends. A protection figure worked out five years ago is a historical document.

The mistakes that cost the most

Buying a savings-linked plan as though it were protection. Covered above, and first for a reason — it is the most common expensive mistake in this market. The plan is not the problem. Believing it is your protection is the problem. Check the split.

Sizing the cover to the premium you can imagine, instead of the loss you would face. Everyone has a monthly figure in their head before they start. Working backwards from it produces a plan that fits the budget and not the risk. Do it the other way: establish the gap first, then decide how much of it you can afford to close now. A partly-closed gap you understand beats a fully-closed gap you invented.

Insuring the wrong person. Households sometimes insure the parent who is easiest to insure rather than the one whose income the household actually runs on. Ask who would cause the financial problem, not who is most agreeable to a medical.

Forgetting the debt. People price cover against monthly expenses and never add the outstanding balance. In the example above, that omission alone was ₱680,000.

Owning only life cover. Death is the risk people plan for and, statistically, not the one most likely to hit a household in its earning years. Serious illness that you survive can be financially worse, because the income stops and the spending rises at the same time.

Letting it lapse. Cover you stopped paying for is cover you do not have. If a premium is not sustainable at the price of a bad year, it was set too high on a good one.

Never checking the beneficiary designation. It is a line on a form. It decides where the money goes. Marriages, births and estrangements all happen after policies are signed, and the form does not update itself.

What to ask any advisor — including me

Take these to whoever you talk to. If the answers are vague, that is information.

1. What number are we solving for, and how did you arrive at it? A recommendation with no figure behind it is a preference dressed up as advice.
2. Which of the four jobs does this plan do, and in what proportion? If it does more than one, ask how the premium splits between them.
3. How much of what I pay buys protection, and how much goes into a fund? In pesos. In writing.
4. What happens if I stop paying in year three? Ask specifically what you would walk away with, and whether the cover ends immediately.
5. What is excluded, and for how long? Ask about waiting periods, pre-existing conditions, and the contestability period.
6. Are you independent, or tied to one company? I will save you the question in my own case: I am tied. I am an Assistant Unit Manager with Pru Life UK, so the plans I can arrange are theirs. I would rather say that at the start than have you find it out at the end. The arithmetic in this guide is carrier-neutral — take your number to anyone and compare.
7. How are you paid, and does this recommendation pay you more than the alternative? It is a fair question. It should get a plain answer.
8. What happens if I do nothing? If the honest answer is “not much, for now,” a good advisor will say so.

And one to ask yourself, before any of the above: what am I actually trying to protect? Everything in this guide is machinery. The answer to that question is not.

Where to go from here

Three things you can do today, in order of effort.

Find your existing sum assured. Dig out the policies. Write down the sum assured of each — the real one. Ten minutes, no cost, and it is the input everything else depends on.

Run the four components on your own household. Paper is fine. A calculator is fine. If you would rather have it done for you, the Insurance Fit Check at planwithbrian.com asks six questions, takes about two minutes, runs entirely in your browser, requires no email address, and shows you the arithmetic behind every line of its result.

Then, if you want to, talk to someone. Bring your number. Make them justify any change they propose to it. That is a much better conversation than the one that starts with a brochure.

Brian Estores · Assistant Unit Manager, Pru Life UK
[email protected] · 0960 593 1937