APPENDICES |
APPENDIX
C: Pre-Need Plans |
“Pre-need
companies offer education, pension, and memorial plans. Based
on the Rules on Pre-Need of the Securities and Exchange Commission
(SEC), ‘pre-need plans are contracts that provide for
the performance of the future service(s) or payment of future
monetary consideration at the time of actual need, payable
either in cash or installment by the plan holders at prices
stated in the contract with or without interest or insurance
coverage and includes life, pension, education, internment
and other plans which the commission from time to time approve.’”
(Ateneo-EPRA Project, 2006)
Pre-need plans come in two forms: open-ended and fixed value
plans. Open-ended, actual cost, or traditional plans pay the
actual cost of the need that you paid for, e.g., education,
burial expenses, etc.. A number of pre-need companies have
been unable to pay open-ended planholders because the actual
costs (e.g., of education) have increased unexpectedly and
substantially in the last 10 years. Now, only fixed-value
education plans are being offered by these pre-need companies.
(Padojinog, 2005)
In the Philippines, pre-need pension plans usually have the
following features (Aquino, 2002):
n• It usually takes you
five years of regular monthly, quarterly, or annual installments
to complete payment of a pre-need plan.
n• You can choose whether
you get the benefits of your pension when you reach a certain
age (e.g., 60 years old) or a number of years (e.g., 20 to
30 years) after you complete your payments. The time you get
your benefits is called the maturity date .
n• You can choose whether
you get the benefits of your pension in lump sum (e.g., PhP
2 million) or in installments (e.g., PhP 40,000 monthly) or
both.
n• In case of your death
before the maturity date, pay-out will still be made at maturity
date to your chosen benefciaries.
“To ensure payment of benefits, pre-need companies are
required to contribute to a Trust Fund which are funded from
their collection of their clients payments.
A number of pre-need companies are subsidiaries of banks or
insurance companies. Pre-need firms are regulated by the SEC
and not subject to liquidity requirements imposed by the central
bank. Recently, however, a few of the big pre-need companies
have experienced financial difficulties and failed in fulfilling
their contractual obligations to their clients.” (Ateneo-EPRA
Project, 2006)
APPENDICES |
APPENDIX
D: Types of Risks |
(Taken
from “Primer on Savings and Investment Instruments in
the Philippines”, 2006, Ateneo-EPRA Project)
a)
Interest Rate Risk. Changing interest rates can have a major
effect on fixed-income investments, e.g., treasury bills. If
you invested in treasury bills at a fixed rate of 7% per annum
(year) and the interest rates in the market later increased
to 10% per annum, then you lose the opportunity to earn the
3% difference. You don’t actually lose money. You just
could have earned more but didn’t.
b) Business/Event Risk. This refers to unforeseen circumstances
that may adversely affect a specific company or industry. If
you invested in commercial papers of a specific company and
the business of that company faces big problems or are affected
by a natural disaster, the value of your investment may be affected.
c) Credit Risk (or Default Risk). This is the possibility that
the issuer of a bond (e.g. a company or a government institution)
will fail to make timely payment of interest and principal to
investors in the bond. If the bond is part of a mutual fund
or a unit investment trust fund (UITF), the risk will certainly
affect the net asset value of that fund. For stocks, credit
risk is the likelihood the company issuing the stock may have
financial problems that may lead it to cut or suspend its dividend
payments.
d) Market Risk. This arises from the ups and downs and sentiments
of the markets, which may affect the prices or value of bonds
and stocks.
e) Purchasing Power/Inflation Risk. This happens when the financial
return on an investment loses purchasing power due to a general
rise in the prices of goods and services. To deal with this
risk, a person must ensure that the investment rate of return
exceed the rate of inflation.
f) Political Risk. Political risk stems from changes to the
political and socio-economic conditions of the Philippines that
may affect market sentiments, business profits, and investment
returns. |
