Financial experts caution parents vs. buying pre-need plans

Financial experts have cautioned parents against buying pre-need plans for their children’s educational requirements.

This, following a number of plan holders complaining over pre-need company Loyola Plans Consolidated Inc.'s non-release of the plan holders' claims.

President of First Metro Asset Management Gus Cosio said some pre-need companies are encountering trouble because they promised their clients fixed returns based on high interest rates that prevailed at the time the plans were purchased but have since gone down.

"In our case, we had been telling people for the last 10 years that mutual funds would probably be a better investment vehicle for your future educational needs because fund managers do have a track record of not promising returns but delivering returns," Cosio said.

"Pre-need, they promise returns because they give you a fixed value, even a moving fixed value in the future, but you don't know how much you're gonna pay them. So it's a promise based on too many moving parts. When it comes to investment returns, nobody can really promise anything," he added.

Salve Duplito, a financial planner, has urged the Insurance Commission, which regulates pre-need companies, to intervene immediately because enrollment is ongoing for the next school year.

"I hope that the Insurance Commission will step in immediately, find a way to make the Loyal Plans answer the demands of the people, find a way to look at their finances, look at their insolvency if they are insolvent, find out if they are actuarially safe and give a statement to people already. Because it it has to go into receivership it has to be done quickly, it's already enrollment time," she said.

She also said that just because a pre-need company is licensed by the government does not mean it is risk-free for investors.

"A lot of people think as long as the company is licensed by the government, that's okay, I don't think that's a good way to plan your future, you can't depend on regulation. Loyola Plans was licensed then look what's happening to it now," she said.

She added the country needs to improve the financial literacy so people will know how to invest properly.

-ANC's Dateline Philippines, April 13, 2016

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