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April 26, 2019

ABCs of Insurance and Investing

Here are the basics of Insurance and Investments

Brighter Life Glossary
 

Advisor

A Financial Advisor is a professional and caring partner who can guide you towards achieving your goals. They do this by helping you make smart money choices that fit your lifestyle and needs.  Our financial advisors’ goal is to help people live brighter lives through financial wellness.
 

Back-End Load

A “back-end load” is the service fee charged to you when you claim the profits of your mutual fund investment.
This is a fixed or variable fee that will be charged when you sell a part of (or all) your mutual fund investment. Ask your Advisor if this is the best financial decision for your needs.
 

Balanced Fund

From its name, a balanced fund offers you a balanced mix between aggressive & conservative investment portfolio. This mix enables your fund to have a steady profit that is not greatly affected by economic fluctuations, making it perfect for those with a moderate risk tolerance.
If your risk appetite is between conservative and risky, you can invest in a mix of equity and high-quality debts – which this type of Mutual Fund can deliver.
 

Beneficiary

A beneficiary is the person who is entitled to claim and receive the value of your insurance or investment fund should something happen to you. They are the people who would benefit from these so they should be those people you work hard for.
Upon availing an insurance policy or mutual fund investment, you have the privilege to name a child, spouse, relative, or partner to receive its benefits after a certain time or if something happens to you.
 

Critical Illness Insurance

This type of insurance helps you cover the high cost of being sick. There are policies under this that lets you claim a lump sum upon diagnosis of specific illnesses. See Sun Fit and Well (link to product page) as an example.
 

Dividends

Dividends are portion of a company’s earnings that is “divided” among its shareholders. Investments with dividends entitles you to share in the profit of the company where you invested.
 
Emergency Fund

Emergency fund are savings intended to be used for unexpected life situations such as health issues, loss of income, calamities, even death. Having an emergency fund  helps you deal with sudden financial needs without wiping away your savings.
 

Endowment Insurance

This is a type of insurance that endows or gives you a lump sum upon maturity of contract, or death of policyholder. In general, endowment refers to assets such as income or property that you hand down to your heirs.
 

Equity Fund

If your risk appetite is aggressive, you can invest in a “high stakes, high reward” type of Mutual Fund  invested in high-quality equity securities.
 

Excess Premiums

These are cash amounts you decide to pay in excess in order to increase the amount of your investment or of your insurance coverage. You can usually pay excess premiums for your Variable Universal Life (VUL) policies.
As a policyholder, you can pay more than your regular monthly, quarterly, or annual premium to increase the amount of your investment or insurance coverage. These usually apply to Variable Universal Life (VUL) policies.
 

Face Value

This is the amount you will receive upon the maturity date of your policy. Should something happen to you, this will be the amount your beneficiaries will be able to claim. This term is often interchanged with the “death benefit.
 

Front-End Load

When you purchase mutual fund shares, there is a sales charge and it is referred to as front-end load. Different mutual funds companies can have different front-end load. Since this reduces the amount of your investment (investment - front end load), it is a good idea to inquire about this fee and other charges before purchasing mutual funds with the help of your financial advisor.
 

Fund Allocation (a.k.a. Asset Allocation)

Fund or asset allocation refers to how much money you want to invest and in which investment product. For example, if you have PhP 100,000 and you want to allocate or distribute it 50% in a balance mutual fund and 50% in an index mutual fund. This will help you create a portfolio or collection of investments that is right for your financial goals and risk tolerance.
 

Change in Fund Allocation

This refers to changing the fund type of your investment. For example, your VUL’s existing fund (made up of your premiums) are placed in Balanced Fund. However, you want future premiums to be invested in an Index Fund. You can request for a Change in Fund Allocation from your financial advisor. Note that this is different from Fund Switching (put link).
 

Fund Selection Risk

Each mutual fund carries different risks and potential returns. So when choosing a fund, always keep in mind your goal while considering historical performances, company/fund manager reputation, as well as fees and charges that you might incur. You can always seek the help of a trusted financial partner (e.g. Financial Advisor – put in link) to help you make a bright decision.
 

Fund Switch

As a mutual fund investor, you can decide to switch from one fund to another, from Balanced Fund to Index Fund. Doing so may be free of charge up to a certain limit, depending on your policy or mutual fund company.
  

Fund Value

The fund value is the monetary value of your investment. Its values change over time, ideally growing as time progresses. Fund values can be guaranteed or variable. In the case of mutual funds, fund value can differ on a daily basis depending on the NAVPUs or the Net Asset Value Per Unit which depends on several factors, including economic and market performance.
 

Guaranteed Fund Value

In a life insurance policy, this is the assured amount that you or your beneficiaries will
receive upon maturity or in case of death.
 

Variable Fund Value

This is the projected value of your fund after a specific number of years. This also takes into consideration the contribution of the investment tied up to your VUL.
 
The state of being able to provide a steady flow of income for yourself or for your dependents should something happen to you.
Commonly used to describe a benefit of insurance and investment, it refers to one’s capability to support dependents in periods without gainful employment due to sickness or injury.
 
A fund that mimics the performance of the Philippines Stock Exchange Index. This fund chooses to invest your money in the country’s biggest companies.
  

Life Insurance

Life insurance is all about paying money (premiums) in advance so you can receive a bigger guaranteed payout in the future. It is a way of ensuring that you have a fund in the future, no matter what happens. The receivable money can be used in many ways like using it as a fund for education, for a milestone, for retirement, or for paying health costs. It is also a way of ensuring income protection for your loved ones should something happen to you.
 
As a form of financial protection, you pay a Premium within a specific period to ensure a guaranteed payout upon maturity, death, or disability. You can use this for Income Protection , estate tax payment, health cost, and other benefits.
 

Life Stage

Each one of us has our own unique timeline when it comes to getting started with one’s independence, moving up, preparing ahead, and leaving a legacy towards one’s retirement years. Every life stage has its own opportunities and challenges, prompting one to be financially-ready for its milestones.
 
Loyalty Incentive
A loyalty incentive is a bonus given to you for being able to consistently pay your due premiums. This incentive can be in the form of additional investment shares or an amount equal to 2% of your average monthly fund balance for the past 5 or 10 years.
Sticking with your insurance policy can give you a bonus called Loyalty Incentive. If you do not cancel your insurance policy or give up paying your premiums for a given period, you can be entitled to additional investment units/shares or an amount equal to 2% of your average monthly fund balance for the past five or ten years.
 
Maturity
Maturity is the time that your policy proceeds are ready for claiming.
When your insurance policy matures, it means that your Premiums (link) invested money has become equal to your Face Amount (link).
 
Mutual Fund
It is a financial instrument where investors pool their money together to make investments more accessible and affordable. It empowers ordinary Filipinos to invest in different companies or funds that usually require higher investment capital. It is easy, affordable, and less risky since your money is managed by professional fund managers.
 
NAVPU (Net Asset Value Per Unit)
When you invest in UITFs sold by banks, you are actually buying units of participation. NAVPU refers to the price of each unit of participation, which varies depending on the movement of market prices.
 
NAVPS (Net Asset Value Per Share)
When you invest in Mutual Funds (link), you are actually buying units of shares called NAVPS. The price of each share can appreciate or depreciate based on several market and economic factors.
 
Offer Price
This is the amount that an investor needs to pay to make an investment, like a Mutual Fund (link). Usually, it’s the same price as the Net Asset Value Per Share (NAVPS) (link).
 
Premium
This is the cash amount you pay for your insurance.
 
The amount you need to pay monthly, quarterly, or annually when you buy an insurance policy. It is important to pay your on time because they can affect the validity of your insurance protection and benefits.
 
Risk appetite
There are three types of investor each with unique goals, available funds, and attitude toward risk. They are classified as:
Knowing your type will greatly help you be successful with your investments.
 
ROI (Return of Investment)
These are your gains proportional to your investments. You should seek the help of a financial advisor so you can weigh your options when investing.
 

Trust

It is an agreement or contract on how your assets will be managed and distributed upon death or disability. For example, a mother can setup a Trust where a trustee will legally distribute assets to her children, in case something happens to her.
 
UITF (Unit Investment Trust Fund)
A UITF allows you to pool your money with other investors in order to invest in a basket of different investment products under the care of professional fund managers. Unlike Mutual Funds (link), these are mostly managed and offered by banks.
 
This type of financial product combines the benefit of life insurance (link) for protection and investment to accumulate wealth. It can help you invest with more confidence knowing that your future is secured as you grow your hard-earned money.  
 
Zero Coupon

When you invest in a zero-coupon bond, you will yield a return after a specified maturity date only. This is usually recommended for long-term financial goals like an education fund or for your retirement.

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