Pinoy Business Coach

In one of my earlier columns, I wrote that a person transmits to his heirs at the precise moment of his death not only his property and transmissible rights but also his obligations. Thus, even if a person accumulates several assets during his lifetime, these would benefit his family little if at the time of his death he also leaves behind many unsettled obligations.

 IThis is especially true among young entrepreneurs who usually rely on credit for their business. As they build their wealth, they usually require help from creditors to operate and grow their business. The problem is when death prematurely strikes. The family is usually left with an inheritance that is so diminished by obligations.

I recall the speech of business tycoon John Gokongwei, before the Ad Congress in November 2007. He said:

“Let me begin with a story I have told many times. My own. I was born to a rich Chinese-Filipino family. I spent my childhood in Cebu, where my father owned a chain of movie houses, including the first air-conditioned one outside Manila. I was the eldest of six children and lived in a big house in Cebu’s Forbes Park.”

“A chauffeur drove me to school every day as I went to San Carlos University, then and still one of the country’s top schools. I topped my classes and had many friends. I would bring them to watch movies for free at my father’s movie houses.”

“When I was 13, my father died suddenly of complications due to typhoid. Everything I enjoyed vanished instantly. My father’s empire was built on credit. When he died, we lost everything—our big house, our cars, our business—to the banks.”

“I felt angry at the world for taking away my father, and for taking away all that I enjoyed before. When the free movies disappeared, I also lost half my friends. On the day I had to walk 2 miles to school for the very first time, I cried to my mother, a widow at 32.”

“But she said: ‘You should feel lucky. Some people have no shoes to walk to school. What can you do? Your father died with 10 centavos in his pocket.”

“So, what can I do? I worked.”

“My mother sent my siblings to China, where living standards were lower. She and I stayed in Cebu to work, and we sent them money regularly. My mother sold her jewelry. When that ran out, we sold roasted peanuts in the backyard of our much-smaller home. When that wasn’t enough, I opened a small stall in a palengke.”

Fortunately, the story has a happy ending. Gifted with a keen business acumen combined with industry and persistence, John Gokongwei went on to build one business after another. Today he owns and runs one of the biggest business empires in the country.

Apart from the hope that it inspires, this story offers an important lesson: the need to establish a safety net that would ensure that, even as one builds wealth to secure the future of his children, such wealth does not fall short when the time comes.

Such safety net could well be a life-insurance coverage. Through life insurance, one can intentionally enlarge an existing estate without having to build one. If you know that your obligations today would effectively leave your family with little or no inheritance, or, if you would like to leave more wealth than what your current estate could offer, then you can use life insurance to create a new estate.

I was given an interesting illustration of this by my mentor many years ago. Liken it, he said, to a man climbing up the stairs to reach the 8th floor. If he suffers a fatal heart attack on the second floor, he would not have made it to his goal. On the other hand, by riding an elevator and pressing the button for the 8th floor, even if he suffers that attack, that elevator would still bring him to his destination. By pressing that button, he would have created the certainty that he would get to his goal. He “created” a floor by that stroke of a finger.

This is exactly what life insurance does—by a stroke of a pen, a new estate could be created and with it, the certainty that wealth would be inherited by your heirs in the future, regardless of the condition of your current account.

*This is a very good way of explaining life insurance since most do not understand what it is and what i