Today, I woke up with a feeling of excitement. This day will be the first time I will be delivering my a death claim check. As a financial advisor these are the once in a blue moon events where you feel the joy and satisfaction of being a financial advisor.
HOW IT ALL HAPPENED:
Around 5 years ago, I was referred to a businesswoman in her early 50s. She owns a business in the construction industry. Initially our financial planning consultations were mostly about her own personal affairs. Eventually as the years pass, and as our relationships deepen, our consultations went further into financial consultations for her business - specifically for employee loyalty and retention.
We were able to craft a financial plan that would allow her to attract better quality employees as well as retain them by creating great compensation packages and employee benefits. One of these was a comprehensive group plan or a CGP. Never did I know that the plan I suggested would allow me to feel what I have experienced today.
CPG or comprehensive group plan is a retirement program which allows companies to prepare for the eventual retirement of their employees by setting aside a small portion of their earnings in a BIR tax qualified deposit system that earns guaranteed interest several times higher than the bank. Further amounts invested here may be assigned to another employee should they resign early on.
A few days ago, I received a call from my client's secretary asking help in claiming death benefits. My heart raced as I thought, is my long-time client already dead? Oh no! But it was not my client that needed help, it was one of her employees.
As I gave the widow her benefit check, I reminded her that this check is a gift of love from her husband. “Your husband could have named his parents as beneficiaries but he named you because he cares for you and your children.”
Tears then swelled from her eyes. I hear her whispering “it was not supposed to happen this way. It was so sudden, he was so young.” Man as I am, I did not know that my eyes were already sweating as I was listen to her stories.
I gave her a hug and said, “This check may not ease your emotional burdens but at least this can ease the financial stress that you are feeling right now, everything will be all right.”
As I left the office of my client today, I recounted the lessons I learned from my first death claim. And here are the top 5 lessons I learned:
1. Life Insurance is most appreciated when someone dies
Before the widow and I parted ways, I may have heard more than 10 repetitions of the words, thank you. She even said that she will never forget the company where her husband worked and Insular Life. These are the times when you feel an all-time high. When you feel that you are close to being the national hero of the Philippines. I had to taste and feel this moment. Often, our job as a financial advisor are filled with No’s and rejections. But today is different.
2. No matter how young you are, you still need to be protected from Life’s risks
His husband was only 45 years old. He never showed any signs of sickness at all before he suddenly dropped dead due to a stroke while driving his boss’ company car. Death knows no age and no time. Anyone who feels invincible should know that the mortality rate is still at 100%.
3. Having a good relationship with your financial advisor can make your life easier
Imagine if my client did not have any trusted financial advisor who took care of her. Or she did not select the right financial advisor who can service her needs in the long run. The claims process could have been very long and tedious for them. When I learned about the incident, I sent my staff to get the necessary claim documents immediately from my client. In fact, the client or the beneficiary didn't need to visit our office to process the claims. Me and my staff handled it well. In fact, I was the one who delivered the claims to them in their office. This is because I valued my client and they valued me. So, I am very willing to give extra mile service at no additional cost on their part.
4. The best way to treat a life insurance benefit claim is to reinvest 80% of it back for your future.
During my short conversation with the widow, I realized that she works as a store attendant of fast food store. She also mentioned she had 3 kids and one is in senior high, about to go to college. I realized that if I advised my high net worth client to be financially healthy, I should also advise her to be financially healthy as well. So, I told her to reinvest 80% back in the form of managed funds. I told her that this money is a memory of the hard work from your husband and must be used for you and your children’s future. She went silent for a bit, probably thinking and thankfully she said yes.
5. Never share to your friends and relatives that you have received a life insurance benefit check unless you plan to reinvest it.
During our conversation, I told her to not tell anyone that she received a benefit check if she does not plan to reinvest it. I explained to her the risks of exposing it to people even to closest friends and family members. She must not even show a hint of a large spike in her lifestyle, lest others will notice and wonder. Good thing she decided to reinvest the check so she need not worry.
Being a financial advisor is one of the toughest jobs in the world. As they say, we eat rejections during breakfast, lunch and dinner. But as I reminisce today’s events, I realized that all the years of melancholy brought by this job is then quickly erased by the sight of a widow hugging you. Visualize for a second a widow crying tears of joy. For one moment you feel sad, but suddenly you realize... events like these make our lives worth living for.
I was one of your attendees during your Income Tax 101 Seminar held in Makati and I thank you for your advocacy to help small time businessmen like us by providing affordable seminars. I admire your team's dedication to your advocacy of erradicating poverty in the Philippines through financial literacy.
During the introduction part, I heard that Mr. Mark Fernandez was invited by the Senate to discuss about Estate Taxes. He also gave his opinion saying that the proposed tax changes may increase wealth inequality and may create more poor people. I would like to clarify this.
So my question is, will the proposed tax changes by the Duterte administration reduce the poverty gap? Or will it create more poor people? I am just confused because the news and the media says that the proposed tax changes will be good for the Filipino people.
Thank you and more power. I hope to attend more of your seminars.
Thank you for your patronage to our seminars and for your encouraging words. Rest assured that we will continue to spread our advocacy to more Filipinos in need. My answer to this question is merely an opinion based on how I see the proposed tax changes. Others may disagree but here is my humble opinion:
First, let us identify what are the proposed tax changes:
1. Plan to reduce personal income tax (taxes paid on money that individuals and sole proprietors earn.)
2. Increase excise taxes (taxes paid on some items that we buy)
3. Reduce estate tax (taxes paid upon death)
With the proposed changes the minimum amount of income per year needed for you to be taxed will now be increased to P150,000 per year or P250,000 per year. This is would be good since this means lesser taxes to be paid and more take home pay.
However, this will be bad for the minimum wage earners because they themselves will not be benefiting since they are exempt from paying taxes. Thus the proposed reduction in income tax will benefit the upper and middle class but not the lower class.
Second, let's look at the proposed excise tax increase on - automobile, sugar, fuel and LPG. This would mean more expensive cars, higher transpo cost, more expensive food and beverages with sugar and other ripple effects due to higher oil prices. Thus the proposed increase in excise tax will not benefit the upper, middle and lower class.
Now, let's look at the proposed reduction in Estate Tax. This means that amount of taxes that the heirs will pay from the inheritance they receive will be reduce from 20% to 6%. The proposed reduction in Estate Tax will greatly benefit the upper class.
So in summary, the proposed tax changes will benefit the following:
Upper class - Will benefit from lower Estate Tax and Income Tax but will pay more Excise Tax
Middle class - Will benefit from lower Income Tax but will pay more Excise Tax
Lower class - Will not benefit at all from the proposed tax changes. No benefit due to lower Estate Tax, lower Income Tax and higher Estate Tax
If you belong to the upper class, then the proposed tax changes will be good for you. Your heirs will be paying lesser Estate Taxes from 20% to 6% on the inheritance they receive.
Minimal to no effect for the middle class because despite the reduction in income tax, the prices of commodities will be expensive due to excise tax.
The hardest that will be hit are the minimum wage earners. They will not benefit from a reduced income tax, a reduced estate tax and will be paying more for prices of commodities and transportation.
Hopefully this sheds some light to your question. This is just my humble opinion, I'm sure the Department of Finance, our honorable senators and congressmen have their own reasons why. Feel free to comment below and let me know your thoughts too.
Mark Joseph T. Fernandez, CPA, RFC, AFA, AWP, AEP
Founder of FinancePH