“Investassure” - Long-term Investing with a Guarantee
Efren Ll. Cruz, RFP®
Nope, it’s not a typo. Investassure is a strategy of assuring you of your target funds should the
unthinkable happen between now and the time you expect to complete your fund build up.
Simply put, Investassure combines the power of investing with the safety of insuring.
Digressing a bit, we all see the need to insure our material possessions for fear of loss or
damage. Take the case of our family car. The car gets us from point A to point B without
having to wait in long lines and without being cramped with total strangers. A car also allows
us to get up and go to weekend outings on a whim.
Being so inextricably woven into our
activities, we are bound to experience a significant loss if the car is totally damaged or stolen.
This is the reason why we insure our car against such perils.
Our body is just like our family car. The body’s productive capacity helps us get from point A
to point B, financially. However, death and permanent disability stalk us all the days of our life.
It is but logical for us, therefore, to get life insurance so that just in case the unthinkable
happens before we are able to build up our assets, the gap may be covered by our life
insurance proceeds.
Now what kind of investments can life insurance cover?
Ideally, they should be long-term
investments. After all, life insurance provides long-term protection. More importantly, longterm investing is great because it puts time on your side. Time not only makes investing more
affordable, it also does not force you to chase after high returns where risks are definitely much
higher. And with a long-term investment horizon, you will have enough time to bounce back
from potential losses.
Mutual funds and unit investment trust funds (UITFs) are perfect examples of long-term
investment vehicles, particularly those mutual funds and UITFs that are not in the category of
money market funds (which invest only in short-term instruments). These funds are designed
to help you build your wealth to answer for long-term needs like building a house, sending
your children to high school/college and even retirement.
Investassure can be applied to
mutual funds and UITFs by buying life insurance policies alongside of them.
The ideal
combination under Investassure is term or permanent life insurance policies bundled with
mutual funds and/or UITFs.
Investassure is perfect for the guarantee-fixated Filipino investor because it provides a
guaranteed minimum amount of cash through life insurance (again, should the unthinkable
happen). This preference for guarantees is probably a product of long years of high interest
rates wherein most investors were practically invested in time deposits.
evident from the first few questions that potential investors ask, namely:
Such preference is
1) What is the interest rate?
2) Is it guaranteed?
3) When is the maturity?
By design and by law, mutual funds and UITFs do not have any interest rate, are not guaranteed
and do not have any maturity date. Yet therein lies the beauty of investing in them since such
uncertainty has a great trade off – it can potentially earn returns much higher than the usual
time deposit, the rates for which have been hitting all time lows in recent months.
And what of the risk of losing part of your investment with mutual funds and UITFs? Put it this
way, earn less than the inflation rate and you are already losing part of your principal. Investors
have to get out of their comfort zone if they want to earn large positive real returns nowadays.
Variable unit-linked insurance products also apply Investassure in one neat package.
Each
payment by the policy holder has an investment and insurance premium component. Just know
what kind of life insurance policy is packaged.
Now what do you do with life insurance when you have reached your target fund level? Keep it.
It’s a bonus that you could use to pay for estate taxes or simply to pass on wealth.
Bundling life insurance with your long-term investments may mean more expenses, but so does
getting car insurance. And while life insurance may not cover the actual risks in investing itself,
your long-term investment horizon may.
Efren Ll. Cruz is a registered financial planner with the RFPI USA. He is author of the bestselling book, “Pwede Na! The
Complete Pinoy Guide to Personal Finance” and a “Personal Finance Coach.” He is also the Chairman and President of
Personal Finance Advisers Philippines Corporation. Questions about the article may be emailed to cruise@skydsl.com.ph
or efren7962@yahoo.com. Efren may be reached at the same email addresses for the scheduling of consultations and
personal finance seminars. This article does not constitute nor forms part of any offer or solicitation of an offer to buy
or sell any securities.