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TIMES

THE PHILIPPINE PRUDENTIAL

SPECIAL ANNIVERSARY ISSUE


CONTENTS 4-5 Messages 6 Philippine Prudential President assumes PLIA presidency

NEWS

7 Philippine Prudential Announces Key Executive Appointments Philippine Prudential’s Pride 8-9 Wild Wild PPL Goes West: A Rock ‘n Rodeo Hoedown (Photo Spread) 10 Wild Wild PPL Goes West: A Rock ‘n Rodeo Hoedown (Story)

FEATURES

11 Philippine Prudential Awarded by National Government for its Microinsurance Efforts 12 Philippine Prudential helps Sendong’s victims 13 Gawad Kalinga Values Formation Graduation Philippine Prudential sponsors GK Village Christmas Party

CORPORATE

CITIZENSHIP

14 Why people don’t like to buy life insurance

CORPORATE EXECUTIVE OFFICERS DANIEL M. MERCADO, JR. Chairman of the Board

GREGORIO D. MERCADO President & Chief Executive Officer

VICTOR P. QUISUMBING Chief Distribution Officer

AMANDO A. MERCADO Chief Operating Officer

JOSE NOEL D. MERCADO Chief Finance Officer

DANIEL D. MERCADO III Chief Information Officer

NENITA N. AGUSTIN

Head – Accounting and Service Delivery

DISTRIBUTION HEADS ROBB S. PAULSEN Head – Retail Marketing

ELMER B. BAINGAN Head – Group Sales

ROSE MARIE T. EVANGELISTA Head – Direct Marketing

VIRGILIO R. KAPUNAN Head – Alternative Markets

LEONIDES S. MERCADO Head – Telemarketing

ONOFRE C. DE DIOS

ARABELLE G. ADIGUE

DANIEL E. MERCADO IV

GREGORIO E. MERCADO, JR.

ZENAIDA F. ARAGON

MA. JOSEFINA P. ALBANIA

Head – Actuarial

Asst. Vice President – Sales & Marketing VisMin Operations

Asst. Vice President – Alternative Markets

Head – Marketing Services

Comptroller/Head – Treasury

Asst. Vice President – Direct Marketing

JED P. LAGMAY

BEVERLY ELENA G. GASCON Head – Information Services

RODOLFO C. ESTRERA

CATHERINE F. ENTERIA

Asst. Vice President – Telemarketing

GAUDIOSO C. DE LUNAS

RAMON S. UNTALAN

NORA S. PASCUAL

MELINDA G. CALIPAY

Corporate Secretary

Asst. Corporate Secretary

Head – Corporate Communication

Treasurer

Head – Customer Service

Asst. Manager for Treasury


TIMES PHILIPPINE PRUDENTIAL

EDITORIAL

Vol. 48 No. 1  February 2011

An Official Publication of Philippine Prudential Life Insurance Company, Inc.

MR. GREGORIO D. MERCADO Publisher MS. NENITA N. AGUSTIN MR. DANIEL D. MERCADO III Associate Publishers

EDITORIAL TEAM RODOLFO C. ESTRERA Editor PRINCESS ANNE M. GRESOLA Content Management GREGORIO FERNANDO B. SABADO Creative and Art Direction MARIA CARMINA S. BARON Contributing Writer

Do you have success stories or good news that you wish to share? Have you or your team received any special recognition? What are you waiting for? PPTIMES encourages everyone to submit articles/photos that you would want to see in our future issues.

Make PPTIMES closer to your heart. Send in your articles now! The views and opinions expressed herein do not necessarily represent or reflect those of the Philippine Prudential Life Insurance Company, Inc.

Corporate Communication Office

Suites 510-513, 5th Floor AIC Burgundy Empire Tower, ADB Ave. corner Garnet & Sapphire Roads, Ortigas Center, Pasig City

Customer Service Hotline Number: (02) 902-2300 Tel. No.: (02) 902-2330 (Connecting all departments) Fax No.: (02) 631-2330 Globe Mobile No.: 0917-57-PPLIC (77542) Smart Mobile No.: 0908-88-PPLIC (77542) E-mail: mypolicy@philprudentiallife.com

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Reaching Greater Heights @ 49 Philippine Prudential Life Insurance Company, Inc. is indeed reaching greater heights as we commemorate our 49th year of providing exceptional service to our growing clientele. Backed by 49 years of sterling, trustworthy and continuous service, Philippine Prudential is fully committed to serve the best interests of its more than 1.5 Million Policyholders and their families. Its employee and agency force of over 1,300 and its strategically-located sales offices nationwide are wholly dedicated to helping Filipinos everywhere live a more secured and worry-free life. With its BusinessIn-Force of over Php 57 Billion, Philippine Prudential’s mission today and in the coming years will be a continuing commitment to provide the best financial advice and diversified and affordable products to its valued clients. In this special issue, you will see that the Company has remained active in different industry events like the 63rd Anniversary of the Insurance Commission of the Philippines where our very own President and CEO, Mr. Gregorio Mercado, took his oath as the new PLIA President. As part of our goal to reach for greater heights, the Sales and Marketing Group also announced that we now have in our fold a very respectable man in the industry. This issue also features the “Wild Wild PPL Goes West” Christmas Party that was attended by more than 700 employees, agents and executives. And finally, as part of the Company ‘s commitment to being a responsible Corporate Citizen, Philippine Prudential shows its continued commitment in helping Gawad Kalinga through its “Bayanihan Challenge” program and Cagayan De Oro branch showing its might in the midst of Typhoon Sendong. Flip through the pages as we unveil more of the dynamic and exciting activities of the industry leader in innovation and growth. At 49, Philippine Prudential would definitely not settle for anything less as we are now a step closer to the realization of our dreams and, indeed, in reaching greater heights.

Philippine Prudential TIMES • February 2012

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MESSAGES

President of the Philippines

Vice President of the Philippines

Insurance Commissioner

My warmest greetings to the Philippine Prudential Life Insurance Company, Inc. on the occasion of your 49th Founding Anniversary.

I would like to extend my congratulations to the Philippine Prudential Life Insurance Company, Inc. as it celebrates its 49th Founding Anniversary.

My profound congratulations to the Philippine Prudential Life Insurance Company, Inc. (PPLIC) on its 49th Founding Anniversary. This is indeed a milestone to celebrate!

For forty-nine years, Philippine Prudential has ensured that the lives of families affected by unfortunate incidents are not debilitated by the occurrence of such, with insurance packages designed for the unique Filipino family.

Through the years, the insurance industry has undoubtedly played a significant role in providing security and peace of mind to the insuring public. In today’s fast-paced and ever-changing world, having a peace of mind may just as well be important as having the basic necessities in life like food, clothing and shelter. While there are still some that regard insurance as costly and unnecessary, we are fortunate that for almost half a century, the PPLIC is steadfast in it sense of duty of enlightening our countrymen on the importance of insurance to our daily lives while also focusing on innovating their quality of service.

Since its foundation in 1963, your company has grown to become among the top insurance companies in the Philippines. This affirms the dedication of men and women of Philippine Prudential Life in providing much needed services to your clients and in becoming a significant contributor to the national economy. As you approach 50 years, may you continue to demonstrate the same commitment that has enabled you to become a leading distributor in this sector. Our country continues to rely on the private sector to generate growth that is more inclusive to all Filipinos. Let us remain united and vigilant as one people on the straight and righteous path, so we can realize our true potential as a great nation.

Thus, I laud you for your theme, “Reaching Greater Heights @ 49” as it promises an even better quality of service for the Filipino Family, by a Filipino corporation. I pray that you will make even greater strides as the years pass. Mabuhay Kayong lahat!

Insurance Commission of the Philippines

We know that the growth and success of the insurance industry is largely dependent on having strong and trustworthy companies such as the PPLIC and we’re hoping that you will carry on with this legacy as you strive for greater heights. May the PPLIC have another 49 years of outstanding success in this field! Best wishes and more power!

BENIGNO S. AQUINO III President of the Philippines

4 | Philippine Prudential Life Insurance Company, Inc.

JEJOMAR C. BINAY

Vice President of the Philippines

EMMANUEL F. DOOC Insurance Commissioner


MESSAGES

Deputy Insurance Commissioner

Chairman of the Board

President & CEO

Congratulations to the Philippine Prudential Life Insurance Company, Inc. (PPLIC) on their 49th Anniversary.

On behalf of our Board of Directors, I wish to express our most heartfelt gratitude to all of our shareholders, employees, agents, business partners and, most especially, to our loyal policyholders, as we reach another milestone for Philippine Prudential Life Insurance Company, Inc.

Once again, I take pride in honoring and thanking all of our stakeholders, especially our valued policyholders, sales professionals and employees.

Philippine Prudential Life Insurance Co., Inc.

Philippine Prudential Life Insurance Co., Inc.

Insurance Commission of the Philippines

The PPLIC’s 49 years of existence has been a colorful journey. From a nichebased company catering to the average Filipino family, it has expanded its horizons to become a company to watch out for. We commend the men and women behind the remarkable evolution of PPLIC. May continue to reap personal as well professional success and further boost the growth of your company without undermining the seal of good and honest service that your loyal clients have been accustomed to. All the best!

We have been able to reach this major milestone, thanks to a proud tradition which began in 1963 by our founding president, Mr. Daniel L. Mercado, Sr., and which has been sustained and enhanced by succeeding generations of employees and agents. For 49 years, we have remained solid, stable and reliable, even in the face of local and global economic challenges. Truly, this is an indication that Filipinos everywhere can trust and depend on PPLIC to secure their future and that of their loved ones. We have, indeed, emerged as one of the country’s fastest-growing insurance companies. As we celebrate our 49th Anniversary and look forward to reaching greater heights, may we continue to offer the same excellent service of providing life insurance coverage to Filipinos and their families everywhere for all years to come. Congratulations and Mabuhay!

From our humble beginnings as a 100% Filipino-owned corporation founded in 1963, and despite stiff competition from much bigger companies, we have proven our track record in providing affordable and dependable products as well as prompt and excellent services to our growing clientele. We acknowledge that this has been possible largely due to the wonderful people who have contributed to our vision, mission and values over the years, namely our executives, employees, agents and business partners who are all essential parts of the whole. As we recognize particular individuals for their outstanding contribution, we know that they are but representatives of a greater whole of talented minds and generous hearts that have helped transform a noble vision into reality. As we celebrate our 49th Founding Anniversary, we will continue to provide value-added products and services that would best serve the interests of all our present and future policyholders, as we adhere to becoming the Filipinos’ partner for life. May the Good Lord continue to bless the Philippine Prudential Life Insurance Company, Inc. this year and many more years to come. Mabuhay!

VIDA T. CHIONG

Deputy Insurance Commissioner

DANIEL M. MERCADO, JR. Chairman of the Board

GREGORIO D. MERCADO

President and Chief Executive Officer

Philippine Prudential TIMES • February 2012

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NEWS Philippine Prudential President and CEO assumes PLIA presidency

Induction of the 2012 PLIA’s Board of Directors and Management Staff. Photo shows (L-R): Ms. Esther Tan, PLIA’s Vice President; Mr. Gregorio D. Mercado, PLIA President; Mr. Omar T. Cruz, PLIA Treasurer; Mr. Jaime C. Fernandez, PLIA Director; and Mr. Mabini L. Juan, PLIA Director.

Mr. Gregorio D. Mercado, Philippine Prudential’s President and CEO, recently assumed an important role in the insurance industry as Philippine Life Insurance Association’s (PLIA) newly-elected President during the Insurance Commission’s 63rd anniversary celebration in UN Avenue, Manila. This event adds to Mr. Mercado’s extensive leadership portfolio as he also served as PLIA’s President in 2008 and most recently as its Vice President in 2011. PLIA is the umbrella organization of all life insurance companies in the Philippines.

Mr. Gregorio D. Mercado greets the event’s Guest of Honor, the Secretary of Finance, Hon. Cesar Purisima.

Newly-elected PLIA President Mr. Gregorio D. Mercado and PLIA Vice President Ms. Esther Tan with Insurance Commission’s Deputy Commissioner Hon. Vida Chiong.

6 | Philippine Prudential Life Insurance Company, Inc.

Key personalities from the various Insurance sectors graced the event and showed their support to the Insurance Commission as it celebrated 63 years of service and also to their colleagues as they were inducted into their new industry positions. No less than Department of Finance’s Secretary Cesar V. Purisima, the event’s Guest of Honor, swore-in the new officers.


NEWS Philippine Prudential Announces Key Executive Appointments Mr. Gregorio D. Mercado, President and Chief Executive Officer of Philippine Prudential Life Insurance Company, Inc., recently announced the Company’s new Key Executive Appointments, effective 02 January 2012, as follows: Mr. Victor P. Quisumbing as Chief Distribution Officer and the new Head of Philippine Prudential’s Sales and Marketing Group. Mr. Quisumbing brings to the Company over 30 years of experience as a career professional in the Life Insurance Industry, beginning with a distinguished and impressive Agency Sales career at Manulife Financial to eventually rise to President and CEO of All AsiaLife, Philippine AXA Life and, most recently, Grepalife. At Philippine Prudential, he will be tasked to drive further growth and expansion of the Company’s existing Distribution Channels, while developing new ones and also introducing innovations to help ensure Philippine Prudential’s sustainable viability in the years to come. Mr. Amando A. Mercado as Chief Operating Officer. Following his various achievements as the former Head of Sales and Marketing, Mr. Mercado will now take on new and distinct challenges to streamline, optimize, enhance and drive all of Philippine Prudential’s Operations units, helping ensure that all of its “back-office” departments work at peak efficiency in delivering timely, relevant and value-added support, not only to Philippine Prudential’s Distribution Channels, but most especially to the Company’s valued clients through its Customer Service group. Additionally, in the Fourth Quarter of 2011, Philippine Prudential appointed Ms. Arabelle G. Adigue as Vice

Photos above show (left to right): Mr. Victor P. Quisumbing, Mr. Amando A. Mercado and Ms. Arabelle G. Adigue.

President for Marketing, bringing to Philippine Prudential her rich experience in Marketing Management, including Product Management, from her stints at AXA, Grepalife and PhilAm Life. “We are greatly pleased and excited with these new executive appointments and look forward to their valuable contributions in 2012 as we enter our 49th year of sterling service in the life insurance industry,” Philippine Prudential President and Chief Executive Officer Gregorio D. Mercado said. “In the last five years, our Company has seen not just impressive, but rather, spectacular results in our overall performance, making us today among the Top 15 life insurance companies in the country. With this latest major milestone, we are determined to continue our upward trajectory as we approach our 50th year and beyond. We thus wholehearted welcome Mr. Vic Quisumbing and Ms. Daryl Adigue to our Philippine Prudential Family, as we wish Mr. Mandy Mercado continued success in his new role as our Chief Operating Officer,” he added.

Philippine Prudential’s Pride The Home Office Life Underwriters Association of the Philippines (HOLUAP) Board of Trustees held their oathtaking last January 30,2012 at the Insurance Commission Office in Manila in the presence of the Honorable Insurance Commissioner Emmanuel F. Dooc (seated). Philippine Prudential is proud that our very own Underwriting Supervisor, Ms. Hazel Martirez-Garcia, was elected as the VICE PRESIDENT for 2012. As Vice President, her main task is to enhance and develop the association’s current programs and activities. HOLUAP is committed in pursuing underwriting excellence in the life insurance industry by providing learning avenues through conventions, seminars and other activities aimed at enhancing the knowledge and skills of its members.

Philippine Prudential TIMES • February 2012

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See next page for full story.


FEATURES

Philippine Prudential ended the year 2011 with a bang as it threw one of its most memorable Christmas celebrations ever on December 14, 2011 at One Esplanade. The event was attended by more than 800 Executives, Employees and Agents of Philippine Prudential. With its Theme: “Wild Wild PPL Goes West: A Rock ‘N Rodeo Hoedown,” the Christmas party was highlighted by a dance group competition that celebrated Philippine Prudential’s Vision and Values through a creative presentation by some of the Company’s prized recruits. Employees, agents and even Company Executives also showcased their singing and dancing talents through various group and individual presentations. To hype-up the excitement of the employees and agents, there were raffle prizes in between segments with minor prizes like Cellphones, Dinnerware and Home Appliances going to more than 300 employees; while the major prize of Php50,000.00 was won by one of our Sales Agents from Southmall.

“Celebrating Vision and Values in a Hoedown Showdown” The classic showdown between the different branches of Philippine Prudential was an artistic expression and interpretation of strengthening, living, adhering to and being committed to our very own Vision and Values and how they would make Philippine Prudential a bigger, better and more dominant player in the Life Insurance Industry in the Philippines and even abroad. The dance group competition was dominated by the EBT-Makati and Robinsons Manila (Faura and Otis) Group and was awarded with a cash prize of Php50,000.00. The group was composed mainly of employees and agents from the People Management and Development Team and the Robinsons Sales and Marketing force.

10 | Philippine Prudential Life Insurance Company, Inc.


FEATURES Philippine Prudential Awarded by National Government for its Microinsurance Efforts

Philippine Prudential Life Insurance Company, Inc., the industry leader in innovation and growth, continues to provide special policies that are highly beneficial to specific target markets. In line with this, Philippine Prudential received a special recognition from the Insurance Commission of the Philippines for its valuable contributions and efforts in the field of Microinsurance during the “Gabi ng Parangal at Pasasalamat sa mga Tagapagtaguyod ng Microinsurance” on January 31, 2012. Microinsurance provides protection to individuals who have minimal savings and is tailored specifically for MFI members with low income, in case of illness, injury or death. In 2011, the Company has paid more than Php22,000,000.00, or more than 600, individual claims to our microinsurance partners and members. It is also through the continuous efforts of the Traditional Marketing Team led by Mr. Elmer Baingan,

Vice President, and Mr. Eric Falcon, Assistant Manager for Group Sales, that Philippine Prudential was recently tapped to be the Official Life Microinsurance provider of the Microfinance Council of the Philippines for its prestigious Citi Microentrepreneur of the Year Awardees (MOTY). Citi MOTY recognizes outstanding microentrepreneurs that help elevate awareness and provide support to the microfinance industry. Photo above shows Finance Undersecretary Gil S. Beltran handing the Plaque of Appreciation to Philippine Prudential Executives led by Victor P. Quisumbing, Chief Distribution Officer; Elmer B. Baingan, Vice President for Traditional Marketing; Eric P. Falcon, Assistant Manager for Group Sales – Traditional Markets and Rodolfo C. Estrera, Assistant Vice President for Corporate Communication. Also in photo are (L-R): Mr. Gregorio D. Mercado, Philippine Prudential President and CEO and current President of the Philippine Life Insurers Association (PLIA); Mr. Takahiro Etchu, Second Secretary and Financial Attaché, Embassy of Japan; Dr. Antonis Malagardis, Program Manager of GIZ-MIPSS and the Honorable Insurance Commissioner Emmanuel F. Dooc.

Philippine Prudential TIMES • February 2012

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CORPORATE SOCIAL RESPONSIBILITY Philippine Prudential helps Sendong’s victims An excerpt from “Philippine Prudential extends its support to Sendong flood victims” by Aiza Balili, Promo Officer, Cagayan De Oro Branch

In the early hours of December 17, 2011, the Southern Philippines was hit by Tropical storm Sendong. With 12 hours of non-stop rainfall, powerful torrents of water gushed into nearby villages, nearly destroying everything in its path.

Moreover, Philippine Prudential employees and agents from all its Distribution Channels also took the initiative to donate goods, mats and clothes to their colleagues who were greatly affected by the typhoon. According to Kagay-anons, it was the toughest time for them. Truly, death comes like a thief at night. It was a calamity that caused so much devastation in all aspects of their lives. Amidst adversities, Philippine Prudential’s people never had second thoughts of extending help to those who were badly in need, whether through financial assistance or goods. What was most important was that we were united in the same worthwhile endeavor.

An initiative by Philippine Prudential CDO Branch Head, Ms. Rina Flores, and with her direct assistance, Philippine Prudential agents and employees mobilized to help the victims of Typhoon Sendong. About a thousand packs of goods and sleeping mats were distributed to Barangays Consolacion, Bonbon, Macabalan, Macasandig and Balulang. Packed lunches were also given to the volunteers of ABS-CBN and GMA networks who have also demonstrated their true spirit of volunteerism.

12 | Philippine Prudential Life Insurance Company, Inc.

Philippine Prudential Cagayan de Oro Retail Sales Office mobilized to help the victims of typhoon Sendong. Bags containing grocery items, rice and clothes were packed carefully and were distributed to evacuation centers.


CORPORATE SOCIAL RESPONSIBILITY Gawad Kalinga Values Formation Graduation

Photos above show: Ms. Rochelle Gomez (1st photo, 2nd from left), Ms. Meravel Miñoza (2nd photo), and Ms. Niña Peña (3rd photo) receiving certificates from Mr. Gregorio E. Mercado, Jr. (3rd from left) that serve as proof of their participation in the Values Formation Seminar. Also in picture are (L-R) Ms. Corina Cabognason, HR Manager of Philippine Prudential and Mr. Gregorio “Tito Gerry” A. Quinto, Gawad Kalinga’s project director for the Philippine Prudential-AMPAP Village.

On December 8, 2011, five of Philippine Prudential’s valued employees finally graduated from the Gawad Kalinga “Values Formation” program. From an original seven who made it to the Values Formation stage, the five employees who successfully qualified and also proved deserving are Ms. Rochelle Gomez, Ms. Niña Peña, Ms. Miravel Miñoza, Mr. Roberto Contillo and Mr. Rodolfo Berdin, Jr. The “Values Formation” program is among the core programs of GK that every “kapitbahayan” candidate undergoes. In this course, candidates are required to attend a series of sessions that would help them build harmonious relationships among their fellow GK members, as well as share common values of being

God-loving, a “bayani” and lover of country. Within this period, the finalists were required to spare a bit of their time at the GK Village to help them easily adapt to what they call “The GK Way.” Mr. Gregorio A. Quinto, who is fondly called “Tito Gerry,” the project director for the Philippine Prudential-AMPAP GK Village, served as the nominees’ leader during the entire Values Formation period. Each of the graduates gets a unit in the Philippine Prudential’s very own GK Village in Caloocan and will now be called a “kapitbahayan.” This is just one of the many ways Philippine Prudential gives back to its valuedemployees’ loyalty and hard work.

Philippine Prudential sponsors GK Village Christmas Party Mr. Daniel Mercado III and Mr. Gregorio E. Mercado, Jr., together with other Philippine Prudential executives, friends, employees, and as well as some friends from AMPAP, gamely shared the special day full of fun and surprises with the village’s people during that day of giving.

Philippine Prudential Life Insurance Company, Inc., remains steadfast to its Corporate Social Responsibility (CSR) thrusts through its continued partnership with Gawad Kalinga (GK). As part of the Company’s continued active support, Philippine Prudential recently sponsored a Christmas Party for the “kapitbahayans” in the Philippine PrudentialAMPAP Village in Camarin, Caloocan City. Philippine Prudential’s President and CEO Mr. Gregorio D. Mercado,

Exciting games and special performance numbers from both Philippine Prudential and the “kapitbahayans” made the event more meaningful. However it was the raffle draw that highlighted the Christmas Party, as nobody went home empty-handed. Philippine Prudential, with the support of all its executives, employees and agents, continues to be committed to GK in various other ways beyond merely financial support. Photo at left shows Philippine Prudential’s executives with Gawad Kalinga officers.

Philippine Prudential TIMES • February 2012

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FEATURES Why people don’t like to buy life insurance By: Efren Ll. Cruz, Philippine Daily Inquirer (Originally published in the Philippine Daily Inquirer on January 18, 2012, page B2.) Question: I have just been offered life insurance. Frankly, I don’t see the need for it because the benefits will be received way into the future. Andy Rooney, an American author and news commentator, once said that “death is a distant rumor to the young.” The money I will use to pay the premiums can be used more productively elsewhere. I could just invest the money and build a fund equal to the amount of insurance coverage. And that would be my insurance.—Budding entrepreneur Answer: Since we are talking about life insurance, let’s try to define life first. The scientific definition of life according to TheFreeDictionary by Farlex is: “The property or quality that distinguishes living organisms from dead organisms and inanimate matter, manifested in functions such as metabolism, growth, reproduction and response to stimuli or adaptation to the environment originating from within the organism.” A more simplistic definition is that life is a state of being, which can be happy or sad, vibrant or spiritless, exciting or dull. But right smack in the middle of (the word) life is a big what “if.” What if I don’t get a good job? What if I get fired? What if I incur a huge loss in my business? What if I develop a life-threatening illness? All of these “what if” questions lead us to focus on the risks in life. As human beings, we have learned that the best way to manage risks is to buy protection. Investment accounts Believe it or not, we buy protection every single day. In food and nutrition, homemakers will make sure their household will not grow tired of the food served to their members. To insure this, homemakers will buy protection by offering a wider variety of viands and perhaps serving an occasional dessert. The homemaker will also insure better health by buying vitamin and mineral food supplements. In transportation, a person driving a motorcycle will buy a helmet to protect himself against nasty spills. Another who is buying a car will surely not want to buy one without seatbelts and a spare tire, even if the car was priced at a discount. That person will be willing to pay more for such protection. To avoid having to scrounge around for money in cases of emergencies, people who are wise with their finances will set up emergency funds in short-term savings and investment accounts. Such accounts bear the opportunity cost of potentially higher returns from longer-term instruments. Heuristics Even in investing we buy protection. Rather than just invest in one instrument that may result in wild fluctuations in value, the smart investor will create a portfolio of instruments that have the potential of canceling out each other’s wild fluctuations. The cost of protection is the time and effort spent on analyzing and monitoring more than one investment instrument. As just shown, we are willing to pay the cost of protection every day. Despite this, many people still don’t see the need to buy life insurance. Isn’t it that in Maslow’s hierarchy of needs, the security need is next only to the most basic need, physiological? This is where we turn to behavioral finance, or the study of why people sometimes behave irrationally with their money.

14 | Philippine Prudential Life Insurance Company, Inc.

In web-based research, I’ve come across studies that say we humans make over 200 food decisions per day, around 125 decisions per hour of driving and a total of around 35,000 decisions every day. Most of them are not that important. But due to the sheer number of decisions that have to be made, we humans rely on heuristics, which are rules of thumb, educated guesses, intuitive judgments, and plain and simple common sense. It is the over-reliance on these that can sometimes cause trouble. Overconfidence is one of the heuristics. With overconfidence, a person overestimates his ability to perform a certain action. For example, he believes that he can easily earn the amount of coverage that insurance policies offer by simply investing his money. Anyway, he claims that he has all the time in the world to do so and that there is a low probability that he will be hit by calamities, accidents or diseases that may lead to death. Bad news! The probability of dying is 100 percent. We just don’t know the time or place. So rather than pretending to be James Bond who can weather a dangerous life, set your feet back on the ground and protect your downside. Prospect theory The prospect theory, as advanced by Drs. Kahneman and Tversky, is another one of the heuristics. The theory says that the average person tends to feel more pain in incurring a loss compared with the amount of joy experienced from earning an equal amount of gain. Put simply, the average person would choose a situation where he gains, say P5,000, over a situation where he initially earns P10,000 then loses Php5,000, even though he ends up with the same P5,000 in both situations. And to the average person, a premium is an expense and a loss (especially since there is no perceived immediate gain). Ask any accountant and he will tell you that premium payments, while cash outflows, are not immediately treated as expenses but rather as assets in the form of pre-paid expenses. They are only expensed out when the benefit, which is either the period of protection against loss or the maximum possible claim, is used up. But with life insurance, the protection can be up to point of death. Only by that time will the insurance asset be fully expensed, but not without a corresponding gain in the form of the benefit claim. Benefits One last argument remains. The insured doesn’t get to enjoy the benefits of the insurance. Well, of course he doesn’t because life insurance is there primarily to financially protect your loved ones when you meet an untimely demise. So don’t think of insurance as continuously paying premiums without any benefit in sight. Remember that the benefit will be paid only when you die. And you certainly do not pay premiums to die. Instead, think of your premiums as installments on the gift of financial protection for your loved ones. Live by what one of the greatest minds in human history says. “Only a life lived for others is a life worthwhile.”— Albert Einstein Stay safe. Be insured.

Source: http://business.inquirer.net/40153/why-people-don%E2%80%99t-like-to-buy-life-insurance


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PP Times - Feb 2012