Noet Ravalo answered a reader’s question on pre-need plans today in INQUIRER.net:
I have heard so much about pre-need plans — some good but a lot more of what I hear seem scary — and would like to know more without hearing a sales pitch. I have a very young family and I was wondering if it is time to consider an educational plan for the kids and perhaps a memorial plan for my wife and myself. If you think they useful, what should I look out for? — Ronald
Pre-need plans, especially for education, pension and funeral expenses, are financial planning instruments in “tingi”. They break down the costs of children’s education, retirement and funeral expenses. Buying in sachets, of course, is always more expensive than buying in bulk.
Recently, pre-need plans in general have suffered from a tarnished image because of the failure of companies like College Assurance Plans, among others, to deliver on their promises. Comments from my previous posts on pre-need plans show that there are a lot of victims who are hurting. Read this post on Pryce Plans and my article on College Assurance Plans here. I got swarmed with comments showing that the public is divided on whether all pre-need plans are worthless. From firsthand experiences showed in that post, however, it is clear that if you plan to buy one, better be extremely careful on which company you buy it from.
Noet wrote a very useful buyer’s guide without the sales pitch 
to help us avoid the usual mistakes.
Do you have the discipline for saving a minimum portion of your income? Having an “obligation” in the form of monthly pre-need payments is at least a disciplined manner of saving. On the other hand, not having such monthly obligation may give you better leeway to offset unexpected expenses (i.e., medical) so you don’t feel unnecessarily constrained.
Do you have the capacity to evaluate financial opportunities as they come along so you can try to beat the returns of a pre-need plan? If not, then you really are back to letting others handle what is necessary for you to cover a future expense. This is not a choice; it simply is the basic reality.
If you have the income stream, the fortitude for saving, the technical skills for investment decisions, you still have to hurdle what is perhaps the biggest constraint faced by anyone: do you have the time to do this or is your family best served by letting others manage it for you?
If you’d rather hand over your money to someone else and get someone else’s services to help you prepare for your financial needs, then you start asking the following questions:
- Is the company sound?
- Does it give good service to its customers? (When grieving for someone or in shock, the least you want to do is untangle customer service issues)
- Can you meet the monthly payments so that your overall investment will not be forfeited?
I know the feeling of being deluged by all the financial mumbo-jumbo when choosing a pre-need product. Sometimes, you just want to get it over with. Besides, you tell yourself you are buying it from a friend anyway. Snap out of it and remember that it’s your hard-earned money. Postponing the decision so you can take a better look at the figures and get more information about a company is ALWAYS a good decision.
An informed buyer makes fewer mistakes.
More links to related news articles:
Retirement plans versus mutual funds
How to choose an educational plan
Many Filipino families are unprepared for the rising costs of education. Photo credit: AFP.
November 1st, 2007 at 10:33 am
I think when you want to invest your money in pre-need companies, you should check the background, management teams,directors, owners.Look what happen to CAP PAcific (owned by Yuchengco’s group of company,Grepalife,RCBC,etc.,). Take the case of PAcific, from the audited F/S, you will know they have money, but they just don’t want to pay or earned little, what they did,is they spin-off the company.To make it appear,that they need a rehab plan for the planholders.At first, the SEC cancelled their license to sell w/ their Lifetime Plan,later, the SEC approved. ISn’t SEC supposed to be for the good of the public?So.the planholders who save their hard earned money during the early 80’s and 90’s now have to start all over again, and mind you, some of these planholders are either sickly,employed,lay-off,or worst,died can’t give their children education. It’s still boiled down to good corporate governance.(integrity,transparency,accountability,trust,and honesty are rare traits these days, coupled w/ poor government actions).
October 18th, 2007 at 1:41 pm
DONT! DONT! DONT! DONT! it’s like trusting thieves with your money. what for? when as many said here you can invest your money yourself. make better use with it than entrusting your hard-earned money to pre-need companies. time deposits, bonds, heck even stocks are less riskier than pre-need.
just allow this industry to die on its own. so much the better.
October 18th, 2007 at 5:28 am
The problem with those folded companies (PEP, CAP) is that they guaranteed you (for as long as you pay X hundred thousands of pesos) that your son/daughter will study in a school with the likes of the tuition fee of Ateneo/DLSU they didn’t take into consideration the continuous rising of tuition fees in those AAA schools.
Now compared this to other companies who just offer you in return the money based on what you gave them PLUS interest (greater than banks) PLUS insurance in case the payor dies.
Guaranteed AAA college education (by hook or by crook) just pay this X amount VS Money you gave them + interest + insurance
Did you see the difference?
October 18th, 2007 at 5:03 am
A guide in buying pre-need plans? –Do you want to be victimized by either one of the likes of CAP and Pacific plans? — I overheard some people talking about not trusting all the local insurers since they are more prone to collapse due sheer size and competence in management and I couldn’t agree more. If one must avail of a pre-need plan from those who are offering right now chose the foreign one (affiliated) at least they are backed with bigger resources and competence. Small insurers also are selling their companies to bigger ones. I read somewhere there are as much as 80% of companies (Insurance) out there that are being watch by SEC and the Insurance commission because they are struggling financially and are about to close. One should not even entertain the idea of acquiring a pre-need plan just invests your money in business you’ll have a fighting chance.
October 17th, 2007 at 11:44 pm
Insurance Commission vs SEC:which do you think have the foundation to secure your savings more? pre-need plans are under SEC which by the way I think has a lot of loopholes in managing pre-need company investment rules. Hachiko is right stick with the good old insurers which by the way is under IC.