False sense of security

by Efren Ll. Cruz, RFP®

Question: My parents tell me that I would need to secure life insurance since I can earn the amount that is promised as coverage. I do not want to go against my parents. And I for one do not like spending on something for which I do not see an immediate tangible benefit. Could we be wrong?

Answer: Recently, my family went on vacation where we brought three carryon type luggage. As you know, now is the time for revenge travel after being couped up at home for two years.

False Sense of Security — Photo by Kindel Media

When we reached our destination, we realized we had forgotten the 3-digit combination of the locks on one of the luggage. We tried our usual combination to no avail. Having no other recourse, I turned to the all-knowing Internet for an answer. Here, I found the article of Expert World Travel entitled, “How To Open A Luggage Lock: All The Different Tricks.” These hacks are:

Try the factory setting combination of 000 or 999.
Try all the possible combinations as it will take only 30 minutes to go through all of them.
If the combination is a TSA lock, buy the corresponding TSA key from retailers and Philippine online selling platforms. The type of key is indicated on the combination. So, if it is a TSA007 type, buy the TSA007 key.
Turn the luggage so that you see the back of the lock and rotate the dials until you can see small open spaces. You need to align the holes, and then try rotating them until the lock opens. This is another trial-and-error method.
For TSA locks, either push or pull the button that is supposed to release the lock. The pressure allows for an audible click once you turn each dial to the correct number.
Some expensive brands make it ultra-difficult to open the TSA-compliant locks on their luggage. In this case, it is best to contact their customer service.

Relying on locks alone to protect your precious cargo is akin to having a false sense of security.

Your life is your precious cargo. You want to and need to protect it just like you would your travel luggage. Relying on the belief that you can earn what you will need to leave behind your family just in case you are called from this life early is also akin to having a false sense of security. You either need to come from a very wealthy family or have no family to leave behind to say that you do not need life insurance.

Moreover, personal finance follows what we at Personal Finance Advisers have always said are the four pillars of money management, namely: cash, debt, risk and wealth or EnRich™ CD-RW. You need to apply these four pillars in sequence because one is the foundation of the next one. For example, you cannot jump to wealth management to create the funds your family will need in the future. No investment is fully guaranteed. Would it not be great to have a stable company shore up the difference in what you have accumulated and what your family will need should you be called early from this life? That is why risk management, which is not only life but also health and property insurance, comes before wealth management.

But insurance premiums are not that cheap. To avoid policies from lapsing or to continue renewing them, you need to have a cash flow budget that is not plagued with expensive items, chief of which are interest and principal payments. That is why you need to apply debt management prior to risk management. Not all debts are the same. That is why you need to know which are necessary for non-discretionary expenditures and which are effective and efficient in helping you acquire more earning assets.

Of course, before you are granted a loan, you will need to show your capacity to repay them. And this is why cash management comes before debt management. You will need to apply proper budgeting practices. Part and parcel of cash management is your sources of income. That is why you will need to see if you are earning the right amount of income to fund your expenses. If not, then you will need to either search for additional sources or start cutting back on your expenses.

Insurance is not only designed to cover expenses if you are called early from this life. Insurance can also cover you for costly medical bills, awareness of which should have been heightened by the pandemic. This is where health insurance riders and health maintenance organization plans come in. Insurance also covers unforeseeable damage to property, whether it be your own or another’s property.

Even if you never make a claim on your insurance policies prior to your policies maturing or expiring, being able to sleep well at night knowing you are adequately protected is already an immense benefit. On top of that, life insurance will provide additional inheritance for your heirs that can be estate tax-free. There is no false sense of security here.

And by the way, for the luggage you use for international travel, you can also get travel insurance.

You are your parents are not wrong. You just need to update your knowledge on the effective application of insurance.

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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach</strong>™</em>. He also writes for the Philippine Daily Inquirer’s Money Matters column HERE.</em>

or more money advice in marriage, you can check out the column For Richer Or Poorer on Inspirations.ph every Friday (publication date may change without prior notice) or send questions directly to yaman@personalfinance.ph.