Risk Management and Insurance Planning
Risk Management and Insurance Planning
This domain tests pure-risk identification and insurance solutions: life, health, disability, property, and liability. Expect questions on insurable interest, indemnity, policy limits, exclusions, beneficiary designation, and needs analysis under the Philippine Insurance Code.
Core rules
- Treat risk by avoidance, reduction, retention, or transfer; insurance transfers specified pure risks.
- Insurance principles include insurable interest, utmost good faith, indemnity, proximate cause, subrogation, and contribution.
- Life insurance needs analysis can use the needs approach or human life value; term suits temporary needs, while permanent and variable universal life combine protection with cash value and fees.
- Health/HMO, critical illness, disability income, property, and personal liability policies cover different exposures; review limits, deductibles, waiting periods, and exclusions.
- Beneficiary designations control proceeds and should be reviewed after marriage, birth, or separation.
Worked example
A 35-year-old breadwinner earns ₱60,000 monthly, has a ₱2 million mortgage, two children ages 5 and 8, and ₱500,000 savings. Needs approach: income replacement for 10 years = ₱7.2 million; mortgage = ₱2 million; education = ₱2 million; final expenses = ₱500,000; total ₱11.7 million. Less savings and ₱1.5 million group life = ₱10.2 million coverage need. Term insurance fits the temporary need; VUL is not automatically superior just because it is marketed that way.
Traps
- Insuring only debt and ignoring income replacement.
- Naming minors as direct beneficiaries without a trustee arrangement.
- Forgetting that VUL charges insurance and fund-management costs.
- Assuming individual life premiums are generally tax deductible.
- Overlooking policy exclusions, waiting periods, and beneficiary wording.