How To Get Life Insurance With Investment: An Ultimate Guide to VUL Insurance
Having insurance will always be part of a solid financial portfolio. In the Philippines, a type of insurance product called VUL or VUL insurance has been growing in popularity or infamy, depending on who you’re talking to. What is VUL insurance and should you really be adding this to your financial portfolio?
Disclaimer: This article is for general information only and is no substitute for professional advice. FilipiKnow is not affiliated with any of the insurance companies recommended by the author.
Table of Contents
- What Is VUL Insurance?
- Types of VUL Insurance Policy
- How Does VUL Work?
- Misconceptions About VUL
- Pros and Cons of VUL Insurance
- When To Get a VUL Policy – Is VUL Insurance Right for Me?
- Best VUL in the Philippines: A Comprehensive Comparison Table
- How Much Insurance Cover Should You Have?
- What To Ask/Expect From Your Insurance Agent
- How To Minimize Risk/Maximize Your VUL Policy
- List of Commonly Used VUL Terms
- Frequently Asked Questions
- 1. Do I need insurance?
- 2. How often should I review my policy?
- 3. When is the best time to get insured?
- 4. My agent said I can use my VUL as an education fund. Is it true?
- 5. When to cancel/terminate my VUL?
- 6. What are the charges in my VUL?
- 7. I want to convert my current VUL to a term insurance/another VUL product. Is it possible?
- 8. I’ve been paying for 3 years and my fund value is still very low, why?
- 9. Can I get everything I’ve paid if I cancel my VUL?
- 10. What happens to my VUL policy if I decide to migrate/permanently move to another country?
- 11. What happens to my VUL policy if I become unemployed and unable to pay the monthly premiums?
- 12. What happens to my VUL policy if I become disabled or diagnosed with a critical illness?
- 13. What are the alternatives to VUL insurance?
- References
What Is VUL Insurance?
VUL (Variable Unit-Linked or Variable Universal Life) is a kind of whole life insurance policy that combines both permanent life insurance and investments into one plan.
Although VUL insurance has been around since the late 1900s in the United Kingdom, it wasn’t introduced in the Philippines until 20021.
Related: How to Buy Term and Invest the Difference: A Beginner’s Guide to BTID
Types of VUL Insurance Policy
1. Single Pay
This type of policy means that you will only be required to pay one time. Single pay policies normally require a huge initial investment, typically not lower than Php 100,000. These policies are more investment-centered as the insurance for these policies is only minimal, at 125% of the premium paid.
2. Limited Pay
A type of policy that is designed so that you will only be paying for the next 5, 7, 10, or 15 years. There is a bigger chance of lapsation in this kind of policy especially if there are multiple withdrawals or extreme market volatility.
3. Regular Pay
Regular pay policies are policies that let you pay your premiums until age 100, or age 88 in some companies. These are typically centered more on protection because you can get a bigger Sum Assured even with a small premium.
How Does VUL Work?
To put it in simplest terms, in VUL insurance, the owner will pay ‘insurance premiums.’ Instead of simply paying for insurance, the insurance premiums will also be invested and will be used to buy ‘units.’ These units work like stocks or mutual funds in a way that the price of the unit changes on a daily basis depending on the performance of the market.
Payment for the insurance portion of your policy will be taken as a unit deduction.
The idea is that invested premium payments over the years will eventually be enough that owners can eventually stop the insurance premium payments, but they will still be able to pay the insurance through unit deduction, while still making their money grow (as the unit price grows).
Let’s show an example:
Let’s say you, as a 25-year-old, took out a VUL policy wherein you will be paying Php 6,000 a month for the next 15 years. Your policy has a sum assured of Php 5 million, as well as other additional riders. When you took out your policy, you informed your Financial Adviser that you wanted to invest in an equity fund so that your investment is maximized.
So if the company invests 100% of your premium on the 3rd year of the policy, this is how it will go:
Your payment of Php 6,000/month to the insurance company will immediately be used to buy ‘units’ from the equity fund. Let’s assume that each unit costs Php 2. It means that your Php 6,000 will let you buy 3,000 units of the fund.
Since the whole premium that you paid is invested (used to buy units), it means that the insurance is still unpaid. If the insurance cost is around Php 500, the insurance company will then take 250 units from your fund as payment for the insurance. This will leave you with 2,750 units in your fund (at Php 2 it is equivalent to Php 5,500).
Similar to the stock market, the goal is to let the price of the units grow. So if the price of the units remained at Php 2 for 12 months, after one year, you will have 33,000 units. Your 33,000 units are worth Php 66,000.
Let us again assume that after one year, the market did really well and the price of the units changed from Php 2 to Php 3 per unit. Since you are still paying Php 6,000 per month, instead of buying 3,000 units, you were only able to buy 2,000. If the insurance cost stays at Php 500, the company will only deduct 167 units to pay for the insurance, instead of the 250 units that were deducted a year ago.
The 33,000 units that you had a year ago will now be priced at Php 3 per unit, so instead of just Php 66,000, it is now equivalent to Php 99,000. Adding all the units that you have (33,000 + 2,000 = 35,000 units) your fund value will amount to Php 105,000.
Assuming again that on the third year, 25th month of investing, the value of the units becomes Php 4 per unit, the process will repeat. The monthly premium payment of Php 6,000 will only be able to buy 1,500 units. After deducting the insurance cost of Php 500 (500/4 = 125 units), you are left with 1,375 units.
To summarize, you were able to buy 33,000 units in the first year, 24,000 units in the second year, and 1,375 units in the 25th month. This comes to a total of 58,375 units which are now valued at Php 4 each. So now, your fund value is Php 233,500.
Misconceptions About VUL
1. It is an investment
A lot of insurance agents – or Financial Advisers – market VUL as an investment product. Although your VUL payments are being invested, buyers of VUL should always remember that first and foremost, VUL is an insurance product.
What you’re buying is the financial protection that the insurance company will be giving in lump sum amounts when sickness, accident, disability, or death (SADD) happens to us.
2. VUL is expensive/It is just an expense
Almost everyone who has spoken with a financial adviser or insurance agent has heard the line that “Insurance gets more expensive as you age.” It is true. Whether it is a traditional insurance product or a VUL, the older you are, the higher the cost of insurance.
The good news is, according to an article from Actuarial Post2, people overestimate insurance costs by almost 400%.
3. You’re only paying the agent’s commission
Whether you get term insurance or VUL, the agent’s commission will still come from the premium you paid.
In VUL, the agent will get a huge chunk of commission only in the first year. In the second year onwards, it is significantly lowered. There are companies that stop giving commission in the fourth year, other companies give commissions until the fifth year, but eventually, it will stop.
Even though agents are not getting commissions anymore, they will continue providing service so long as they remain your financial advisor. In term insurance, every time you renew your insurance, the agent will get a commission. If it is a yearly renewable term, they will get a yearly commission.
4. Insurance payments stop when you stop paying
In a VUL product, whether it is a limited pay or regular pay, you are still “paying” for insurance even if you’re not paying the premium anymore. Insurance payments are taken away from the investment portion of your policy.
Pros and Cons of VUL Insurance
1. Benefits (Pros) of VUL Insurance
a. Protection
As an insurance product, a VUL financially protects you (or your family) in case of death, accident, and/or critical illness. The insurance proceeds or the amount you will get when you’re diagnosed/disabled/dead will greatly depend on the policy that you got or will get.
b. Investment
Unlike normal life insurance or term insurance wherein you’ll only see a return on the premiums you paid when you get sick or you die, the premiums you pay in a VUL are being invested. Like a typical investment, the longer you invest in it, the bigger the returns will be.
c. Customizable
You will have a lot of options in your VUL.
How many years do you want to pay? How much is your budget? Do you want to get a lump sum amount when you’re diagnosed with a critical illness? Do you want to be insured for accidents? Do you want to stop paying your premiums when you’re critically ill or disabled? Do you want disability insurance? Do you want to get “income” for every day that you’re in the hospital? Do you want to add more money to your investment?
You, as a client, can decide if you want to have it or not.
Let’s say you’re a 25-year-old paying Php 5,000 every month in your VUL, there is a range of insurance cover that you can get. You can get an insurance cover of as little as Php 600,000 or it could be as high as Php 5 million. When your Financial Adviser is preparing your policy, it is best to ask how much is the minimum and maximum cover you can get for the budget that you have.
d. Flexibility in protection cover
A VUL policy is pretty flexible. Even after the policy has been issued, you can still request your agent to modify your plan.
You can increase or decrease your sum assured, add or remove riders, and even request to increase or decrease your premium. Some companies allow changes to the policy anytime while others only allow policy changes to be done every policy anniversary.
e. Financial Advisor
As a VUL client, it is within your right to request to get updates regarding your policy/investment every year or anytime you want.
For any changes in your policy, it is also your agent who should be helping you process these things (like change in the mode of payment, adding additional beneficiaries, etc.).
2. Disadvantages (Cons) of VUL Insurance
a. Limited Investment options
Unlike when you’re investing your own money, there are not many fund options to choose from.
Typically, an agent will just let you answer a short questionnaire that will determine your risk appetite in investments, and then present a list of funds that fits your risk appetite.
b. No control over the investments
Investing in VUL is much like investing in mutual funds. You can pick the fund that you’ll put your money in, but you cannot really control how the Fund Manager will be handling the funds.
c. Low returns on the first few years
Normally, the investment return that you can expect from your VUL policy is shown in the proposal that you will be signing. Some VUL policies will already have an investment in the first year, while others do not.
No matter the policy, ALL VUL policies will NOT have 100% of your premium invested in the first year.
d. Not liquid
If you are thinking of buying a VUL policy, it is always best to simply pay the premiums and fund your policy for the first 10 years, at least, especially if it is a regular pay policy.
If you’re hoping to be able to withdraw in the next 3 to 5 years, then VUL is not right for you. Consider investing in Pag-IBIG MP2 instead.
e. Possibility of lapsation
Even though fund managers are the ones in control of the details of the fund, similar to investing in UITFs and Mutual Funds, you will still be responsible for how your investments turn out.
So, if the market is not performing well, there is the possibility that your insurance policy will lapse. This doesn’t normally happen, though, if the client has been paying their premiums faithfully and has not made any withdrawals from the investment.
When To Get a VUL Policy – Is VUL Insurance Right for Me?
Looking at the pros and cons of a VUL policy, you might already have a slight idea if VUL is the right product for you.
Basically, VUL is like a value meal or a set meal wherein you have a little more freedom with regards to what type of side dishes (riders and investments) you want to add to your main dish (life insurance).
If you already know what kind of investment you want to put your money in, and you have the time and knowledge to pour into the investment of your choice, and the discipline to make sure that you will continue this investment for years to come, then VUL is not the right product for you.
If, however, you don’t have the time, knowledge, and discipline to study and predict the market changes, to invest regularly even without anyone reminding you, and to continually invest despite what is happening in the market, then a VUL product is something that can fit your needs.
A VUL could be used as a tool to force you to regularly set aside money for both protection and investment. With only one payment, you have access to both a reputable insurance company that will give financial protection and a competent fund manager who will make sure that your money will grow.
A VUL will also give you access to a financial adviser who would make sure that your policy and investment goals are visited every once in a while, to see if you’re on track with your goal.
Best VUL in the Philippines: A Comprehensive Comparison Table
1. Single Pay
These kinds of VUL policies concentrate more on investments rather than protection. They just require clients to pay a one-time lump sum amount with the goal of growing the amount initially invested.
| Company | Product Name | Minimum Investment | Death Benefits | Withdrawal Charges | Basic Cover | Riders Allowed | Additional Features |
| Pru Life UK | Prulink Investment Account | Php 100,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | Personal Accident, Total and Permanent Disability | |
| Pru Life UK | PruMillionaire | Php 1,000,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | Personal Accident, Total and Permanent Disability | |
| AXA | Asset Master | Php 100,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | Account Value/Fund Value (less surcharges) | 125% of investment | Yes | Guaranteed issue Offer available |
| AXA | Asset Master Dollar | $2,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | Account Value/Fund Value (less surcharges) | 125% of investment | Yes | Guaranteed issue Offer available |
| Sunlife | Maxi One | Php 250,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | Critical Illness Rider | No Top Up allowed |
| Philam Life | Money Tree | Php 125,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | Accident Rider, Accident Medical Reimbursement | |
| FWD | All Set High | Php 100,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | Accident Rider, Hospital Income Benefit, Critical Illness Rider | No upfront charges, only exit charges. No premium charges. Loyalty bonus on the 10th policy year and every two years thereafter. |
| FWD | All Set High | Php 1,000,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | None | No upfront charges, only exit charges. No premium charges. Loyalty bonus on the 10th policy year and every two years thereafter. |
| FWD | USD All Set High Higher | $20,000 | 125% of the Face Amount or the Fund Value (whichever is higher on the 3rd yr) | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | None | No upfront charges, only exit charges. No premium charges. Loyalty bonus on the 10th policy year and every two years thereafter. |
| Manulife | Peso Affluence Gold | Php 100,000 | 125% of Investment or FV – w/c is higher on the 3rd yr | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | None | No medical examination. Guaranteed Issue/Insurability Offer (GIO) available. You can check your investment regularly. Allows 2 free fund switches (moving of investments from one fund to another, within one plan) per policy year. |
| Manulife | Max Gold | Php 500,000 | 125% of Investment or FV – w/c is higher on the 3rd yr | diminishing 5% (i.e., in the first year it’s 5%, 2nd year it’s 4%, 3rd year it’s 3%, and so on) | 125% of investment | None | Hassle-free application. No medical examination. Guaranteed Issue/Insurability Offer (GIO). Allows 3 free fund switches (moving of investments from one fund to another, within one plan). |
2. Limited Pay
A type of policy wherein the client will be paying a bigger premium but in a shorter time period. These policies aim to find a balance between the clients’ investment and protection needs. They are prone to lapsation especially if there are multiple withdrawals and extreme market volatility.
| Company | Product Name | Minimum Annual Investment (in Philippine pesos) | Years to Invest | Death Benefits | Withdrawal Charges | Basic Cover | Riders Allowed | Additional Features |
| Pru Life UK | Pru Exact Protector 5, 7, 10, 15 | 45,000 (5-7 years) 35,000(10-15 years | 5-15 Years | Sum Assured + Fund Value | None | Sum Assured, Total and Permanent Disability | Accident Rider, Total and Permanent Disability, Personal Accident, Critical Illness Benefit, Hospital Income, Waiver on Disability or Critical Illness, Payor Waiver | Loyalty Bonus from Year 11-15 (15 years plan) |
| Pru Life UK | Pru Elite Protector 5, 7, 10, 15 | 200,000(5 years) 75,000 (15 years) | 5-15 Years | Sum Assured + Fund Value | Diminishing until year 10 | Sum Assured, Total and Permanent Disability | Accident Rider, Total and Permanent Disability, Personal Accident, Critical Illness Benefit, Hospital Income, Waiver on Disability or Critical Illness, Payor Waiver | Loyalty Bonus from Year 11-15 (15 years plan) |
| Sunlife | Maxi Prime | Php 18,000 | Min. 10 years | Face Amount + Fund Value | 5 years | Basic Life | Critical Illness Benefit, Hospital Income, Accidental Death Benefit, Accident Rider, Waiver on Disability or Critical Illness | x2 Basic Coverage |
| Philam Life | Health Invest Plus | Php 30,000 | 10 years | Face Amount or Account Value (whichever is higher) | First 10 years | Sum Assured, Accident Rider, Accident Medical Reimbursement, Critical Illness Benefit | Hospital Income, Waiver on Disability or Critical Illness | Philam Vitality |
| FWD | Set for Life 5, 7, 10 | 40,000 (5-7 years) 24,000 (10 years) | 5, 7, 10 Years | Face Amount or Account Value (whichever is higher) | None | Sum Assured | Yes | 15 days – 70 years old can be insured |
| Manulife | Affluence Builder | 50,000 (5 years) 40,000 (10 years) | 5, 10 years | Face Amount + Fund Value | Diminishing (i.e., first year 5%, 2nd year 4%, 3rd year 3%, 4th year 2%, 5th year 1%) | Basic Life, Accidental Death Benefit | Enhanced Critical Illness, Maccimax Plans 1 – 4 (a type of benefit you’ll receive if you get into an accident but survived), Hospital Income Benefit, Term rider, Payor’s Benefit/Total Disability Waiver | Loyalty bonus (3% for 5-pay and 2.5% for 10-pay). Top up available |
3. Regular Pay
These policies concentrate more on protection than investments, so clients can get a bigger sum assured even with a lower premium amount.
| Company | Product Name | Particulars | Minimum Investment | Years to Invest | Death Benefits | Withdrawal Charges | Basic Cover | Riders Allowed | Additional Features |
| Pru Life UK | Prulink Assurance Account Plus | Php 1,500/month | Regular pay | Sum Assured + Fund Value | None | Death and Total and Permanent Disability | Accident Rider, Total and Permanent Disability, Personal Accident, Critical Illness Benefit, Hospital Income, Waiver on Disability or Critical Illness, Payor Waiver | Loyalty Bonus from year 11-20 | |
| AXA | Axelerator | after 3 years, 100% of premium is invested | Php 2,500/month | 5 to 10 years | Account Value or Sum Insured, whichever is higher | Account Value (less surcharges) | Death | Yes | |
| AXA | Life BasiX | after 5 years, 100% of the premium is invested | Php 1,500/month | 10 to 20 years | Account Value or Sum Insured, whichever is higher | Account Value (less surcharges) | Death | Yes | > 6 Peso Funds |
| AXA | Life BasiX Dollar | after 5 years, 100% of the premium is invested | $40/month | 10 to 20 years | Account Value or Sum Insured, whichever is higher | Account Value (less surcharges) | Death | Yes | > 8 PEso Funds |
| Sunlife | Maxi100 | Php 1,500 – Php 2,000/month | Regular Pay | Face Amount + Fund Value | Fund Value | Critical Illness Benefit, Hospital Income, Accidental Death Benefit, Accident Rider, Waiver on Disability or Critical Illness | Loyalty Bonus: 10th year, every 5 years thereafter | ||
| Philam Life | Family Secure | Php 16,000 annually | Regular pay | Face Amount + Account Value | First 10 years | Life Insurance, Accident Rider, Accident Medical Reimbursement | Critical Illness Benefit, Hospital Income, Waiver on Disability or Critical Illness | Philam Vitality, Loyalty Bonus from 20th year | |
| FWD | Set for Life Regular Pay | Funds are managed by BPI and Security Bank | Php 24,000 annually | Whole Life | Whichever is Higher | No. of units X Unit Price – Withdrawal charges | Death | Yes | |
| Manulife | Season 100 | Whole Life | 100% of Face Amount plus accumulated dividends upon the death of insured | Face Amount less Surrender Charges | Death benefit, Living benefit, Maturity benefit | Enhanced Critical Illness, Maccimax Plans 1-4, Hospital Income Benefit, Term rider | Cash payout 10% of Face Amount every 3 years at the end of 10th policy year until age 100 |
How Much Insurance Cover Should You Have?
Financial Advisors would have very varied answers regarding this question, but ideally, your insurance cover should be at least ten times your annual salary.
Basically, it is assumed that ten years is enough for your family to grieve your loss, adjust to the loss of income that you provided, and eventually be self-sufficient enough that their lifestyle is not too greatly affected by the loss of your income.
There are those that suggest that you should have insurance that could at least cover all your debts, and though it is just proper that debts are paid, the good news is that creditors (or the people you owe money to) cannot run after the insurance proceeds that your family will receive3.
What To Ask/Expect From Your Insurance Agent
If you’re meeting your insurance agent for the first time, your agent should either be wearing their company ID or at the very least, they should be able to show you their company ID at a moments’ notice.
After introductions, your insurance agent or financial advisor should first determine what your financial goals are.
It is hard to trust a doctor that would immediately give you a prescription without even knowing what the problem is and getting a diagnosis. The same applies to your financial advisor. It is hard to trust a financial advisor if they immediately show products that they offer without first knowing where you are financially, what it is you really want, and where you want to go.
Your advisor should listen to you and be able to suggest products that will fit your need, budget, and goal. Insurance companies have a lot of different VUL products in the market because they know that there is no one-size-fits-all VUL product. The beauty of VUL is that it is customizable. Take advantage of it!
Insurance companies have a variety of different products, so as a client, your financial advisor should be able to recommend at least two products that you can choose from.
Ask your agent to discuss the benefits and disadvantages of the products that they are recommending. Bear in mind that there is no perfect product, so your agent should be able to compare and contrast all the products that s/he is recommending.
Your agent should be able to explain your policy to you completely. It’s okay if you happen to have questions that your agent is not able to immediately answer, but they should always get back to you with the answers in a day or two.
These are the basic information that your agent should discuss with you: the amount of the sum assured, riders added (critical illness, accident, waivers, etc.), years to pay (single pay, limited pay, regular pay), and (most importantly) the charges on your policy.
Ask your agent if they themselves are insured. Ask for details. What policy/ies s/he has. Under what company/ies? When did they get it? Why did they get it? Are they currently happy with their policy/ies? What do they like about it? What would they change/improve in their policy/ies if they can? This will help you to determine how they’re currently applying what they’re trying to say about money matters to their own lives.
When paying in cash, your agent should be able to give you what is called a provisional receipt. While your application is in process, your provisional receipt is proof of the payment. Once all your documents have been submitted, your agent should give you a copy of the Official Receipt.
How To Minimize Risk/Maximize Your VUL Policy
Since VUL is both an insurance and investment program when the proposal is being drafted, you, as a client, are placed in a unique position wherein you actually have a choice if you want to prioritize investment or protection.
It doesn’t matter how much your budget is, it will have a minimum and maximum Sum Assured.
If you choose the minimum Sum Assured, it means that more (if not most) of your premium payments will go to the investments. If you choose the maximum, more of the premium payments are used to pay for the insurance and there is a bigger chance that you will have to top up if you chose the limited pay option.
Setting the goal aside, whether for investment or protection, it is always best to get your financial advisor to go over the policy with you every year or two so you can be updated regarding the status of your investment and discuss the steps that have to be taken, if ever.
Another use for a VUL is as an MRI, or Mortgage Redemption Insurance. When applying for a home loan, or a substantial loan, one of the requirements that a bank will have is an MRI. Banks require this to protect them from any losses in case the debtor (the one who applied for a loan) met their untimely demise.
Instead of getting an MRI from the bank, some people get a VUL with the bank as one of the irrevocable beneficiaries.
Ask any person with a home loan and one of their main complaints is the high insurance fees that they are paying. In a typical MRI, it is simply a term insurance and it will not be invested. The bank solely controls the policy, and once the loan is paid off, there is nothing to show for all the years that you’ve paid off the insurance.
With a VUL, you can get a policy with a sum assured equal to the loan that you will take. The upside to this is that while you’re paying for the insurance, you will also have a fund value that will grow over the years. Another upside is that if something untoward does happen to you after several years of paying the loan and the insurance, the excess of the insurance proceeds will go to your family.
Finally, when you finish paying off your home loan, you can remove the bank as your beneficiary, and you can simply assign anyone in your family as the beneficiary of this policy.
List of Commonly Used VUL Terms
Let’s discuss the different terms that financial advisers use when presenting their VUL proposals. Please refer to this table whenever you encounter an unfamiliar word anywhere in the article.
| VUL Term | Definition |
| Sum Insured/Sum Assured/Face Amount | No matter what this is called, this is the promised amount that the insurance company will pay in case the insured dies. There is always a set amount for this. |
| Death Benefit | This is different from the Sum Insured simply because there are policies wherein the death benefit is the sum insured plus the fund value/account value. |
| Living Benefit | This is the insurance payout that you, as a policy owner, will receive in case of disability, accident, critical illness, etc. |
| Riders | Additional insurance covers could be added to the basic plan. Riders include, but are not limited to, critical illness rider, total and permanent disability rider, waiver of premium in case of disability, hospital income benefit, accident rider, etc. Take note that when you say accident rider, normally it’s accidental death. If the rider is specified as accident medical reimbursement (AMR), it means they cover even hospitalizations due to accidents. |
| Account Value/Fund Value | This is the investment of your VUL where insurance costs are usually deducted from. As a client, you can also withdraw from the fund value anytime. |
| Top up | This is any amount that is deposited into the policy that is paid on top of the regular premium payments. Typically, top-ups are subject to approval because these amounts also get a minimal insurance component. Top-ups are insured at 125% of the amount invested. |
| Premium Holiday | A term for the short period of time that a client decides not to pay their premium. You can only take a premium holiday if your policy already has sufficient fund value/account value to pay for the insurance costs. |
| Surrender Value | In a nutshell, surrender value is the amount you will get when you decide to terminate your policy. There are policies that will have surrender charges especially if you terminate it within 5 or 10 years of the policy. Normally, insurance companies add surrender charges in the policy contract to discourage policy owners from terminating their policies. Surrender value is the amount remaining after the surrender charges are taken out from your fund value. |
| Surrender Charge | An additional charge will be taken from the fund value/account value of your policy if in case you decide to terminate the policy prematurely, normally within the first 5 to 10 years. |
| Withdrawal Charges | These are charges that are added when you withdraw from the fund/account value of your policy. Some withdrawal charges are government-mandated (tax purposes) while others are there simply to discourage you from making withdrawals from your policy. |
| Loyalty Bonus | There are certain types of policies that also give a loyalty bonus to their policy owners. Normally, this is given for policies that have a paying period of more than 10 years. |
| Underwriting | By definition, underwriting is the process through which the insurance company takes on financial risk for a fee. |
| Guaranteed Issue Offer | All insurance applications go through underwriting where you’ll be answering application forms and underwriting will then decide if it will be approved or not. Guaranteed issue offers are normally given for products that do not need to be underwritten. These could be for personal accident policies or single pay policies. There are also times when the insurance companies will inform their clients of a guaranteed issue offer, that they can increase the sum assured for an additional fee, without needing underwriting approval. |
| Total and Permanent Disability | There are several conditions that have to be met for an insured to be considered totally and permanently disabled. First is occupational disability wherein you are unable to work in the occupation that you’re suited to via education, training, or experience due to your disability. Second is non-occupational disability wherein you’re unable to conduct 3 to 6 activities of daily living (bathing, dressing, mobility/movement, transferring, eating, and toileting). Except for the loss of limbs, and eyesight, most policies will require that the disability be present for at least six months before it is considered ‘permanent.’ |
| Accident | In legal terms, an accident is a “bodily injury suffered anywhere in the world caused solely and directly from accidental, external, violent, and visible means and which are independent of any other cause and not by sickness, disease or gradual physical or mental wear and tear4”. Notice the four words in italics. For an insurance company to consider your injury to be caused by an accident, all four should be present. |
| Maturity | Normally, insurance policies mature when the insured reaches the age of 100. This means that if you’re lucky enough to reach 100, The insurance company will end the insurance cover and simply give you your death benefit for you to enjoy. |
| Beneficiary | A beneficiary is a person that you have assigned in your policy as the person who will receive the insurance proceeds in case of death. |
| Revocable Beneficiary | A revocable beneficiary can be easily removed or changed at any time, but insurance proceeds to a revocable beneficiary are taxed. Most people assign a revocable beneficiary if they’re single or if they think that there will be major changes in their life in the future (Example: Changing their beneficiary from their parents to their spouse or changing the beneficiary from their spouse to their children). |
| Irrevocable Beneficiary | An irrevocable beneficiary is considered as part-owner of the policy. You, as a policy owner, cannot simply make any changes in your insurance without the written approval of the irrevocable beneficiary. Insurance proceeds given to an irrevocable beneficiary are not taxed. |
Frequently Asked Questions
1. Do I need insurance?
There are only two questions you should ask before getting insured:
- Are there people depending on my income?
- Will I financially depend on others when I become critically ill or disabled?
If you answer yes to either one, then you need insurance. If you don’t have any dependents and you’re financially secure enough to self-insure, then insurance is not really necessary.
2. How often should I review my policy?
For investment purposes, it is best to review your policy once a year. This will help to see if the projected values in your policy actually match your actual fund value.
For protection purposes, it is best to review your policy every time there is a major life event: new job, major promotion, marriage, new kids, purchase of real property, etc. It is best to always check if your insurance actually fills your need or if there is an “insurance gap”.
3. When is the best time to get insured?
The best time to get insured or to review your current insurance cover is when there is a major change in your life.
Are you a fresh graduate that just got a new job? It’s time to do some adulting and get a policy so that whatever happens, you will not have to rely on your parents, at least financially.
Just got married? It is definitely time to change your beneficiaries and maybe look into adding more insurance cover to also fit the need of your spouse.
4. My agent said I can use my VUL as an education fund. Is it true?
There are a lot of financial advisers and agents who position the VUL product as both insurance and an education fund. Assuredly, there are VUL products that can be used as an eventual education fund, especially if you do not plan to use or withdraw from the fund for the next 10-15 years.
If you are planning to get a VUL so that you can use it as an education fund, please make sure of these two things about your policy: that the policy you’re going to get already shows a projected fund value in the first year, and that even at the low or mid projections, it will still reach your education fund goal on the year that you’ll be needing it.
It is great if your fund would always perform at 10% and above, but since the investment portion is not guaranteed, it is always best to err on the side of caution.
If the child is already a pre-teen or a teenager, a VUL product is not really advisable as there is only a short period of time before you’ll need the money. There is not enough time for it to grow.
5. When to cancel/terminate my VUL?
There are a lot of people who normally advise you to cancel or terminate your policies, either online or even within your inner circle. They will make you question why you bought the policy. Sometimes, they may even be successful in convincing you that it is a bad idea. Before taking that final, irreversible step, there are a few things you can do to make sure that canceling it is really in your best interest.
Go over your policy. What made you get a policy in the first place? Do you need the insurance cover or were you just momentarily hypnotized by your agent? Do you understand what is in the policy?
If you’re not completely sure about the policy that you got, ask your agent, or another agent that you trust, to go over your policy with you. Most financial advisors would welcome you if you ask them for help with your current policy. It doesn’t matter if they’re from the same company or not, a decent agent should be able to understand any normal policy that is presented to them.
Check surrender charges and see if you’re willing to pay them.
If you’ve reviewed your policy and you’re sure that it is not what you need or what you want, and you’re willing to pay the surrender charges, inform your agent to cancel the policy and withdraw the fund value, or you can just simply allow it to lapse.
6. What are the charges in my VUL?
All VUL products will have initial or set-up charges especially in the first year of the policy. The initial or set-up charges will largely depend on the type of product that you got.
Regular pay products often require higher setup and initial charges. The reason behind this is that insurance companies take on more risk in the first few years of the company, compared to the risk that they have when you’ve already been paying the policy for 10 years or more.
As an example: Let’s say a client took a regular pay policy that he pays Php 2,000 a month for a Php 1 million cover. After paying for 6 months, he got into an accident and died. The company is still obligated to pay out Php 1 million even though the client has only paid Php 12,000. If the accident happened 10 years after the client has religiously paid his monthly dues, the client has already paid Php 240,000 over the years, so the burden is not as heavy for the insurance company.
The insurance charges will be regularly deducted from your premium payments/fund value. Fund management charge is a very minimal charge that will be deducted from your investment
Yes, your financial adviser’s commission is taken from the first year of premium payment. Depending on the product and company, some still get a very, very minimal commission on the second to the fourth year, but typically financial advisers do not get any commission from the fifth year onwards.
7. I want to convert my current VUL to a term insurance/another VUL product. Is it possible?
When it comes to life insurance policies, a VUL is one of the most flexible policies in the market. Although there is more room in a VUL policy to make some adjustments with regards to the sum assured, riders, and even premium payments, one of the things that cannot be changed is the kind of policy that you got.
There are traditional, term life insurance policies that could be converted to a VUL policy, but normally, if you sign up for a specific product, it cannot be changed anymore.
8. I’ve been paying for 3 years and my fund value is still very low, why?
In the first year or so of your policy, a huge chunk of your premium goes to the initial/set-up charges. If you have a regular pay policy, there will be no investment in the first year.
Bear in mind that a VUL product is a long-term investment. Significant growth should not be expected until the seventh or tenth year of the policy.
9. Can I get everything I’ve paid if I cancel my VUL?
If you just recently applied for a policy, you should note that all insurance policies have what is commonly known as a “15-day free look period” or the “cooling off period.” This means that as soon as your policy is approved by underwriting, you have 15 days when you can still return and cancel the policy and the premium that you’ve paid will be returned 100%.
After 15 days, no insurance premiums will be returned even if you decide not to continue with the policy.
For limited pay and regular pay policies, it normally takes several years before you can see substantial growth in the investments. Your agent will have access to see the actual value of your investments and they are the ones who can update you on how it is performing compared to the projections that were shown when they were presenting the product.
At any time you want to terminate your policy after the cooling-off period, ask your agent how much your fund value is and if there will be any surrender charges.
10. What happens to my VUL policy if I decide to migrate/permanently move to another country?
Your VUL policy will still remain in force and you can still claim the benefits even if you decide to move to another country. You can also still choose to continue paying the premium (if needed).
As a client, all you have to do is inform the company of the change in address. Of course, it should be expected that for claims that happened or were diagnosed outside the country, it would take a while for the insurance proceeds to be processed.
11. What happens to my VUL policy if I become unemployed and unable to pay the monthly premiums?
If the policy was issued less than two years ago, there is a big possibility that there is no fund value yet. If this is the case, the policy will lapse.
The good news is that when you become employed again, all you have to do is inform your agent to start the reinstatement process. When reinstating the policy, it is possible that you might have to undergo medical check-ups and to prove that you’re healthy, all over again.
If you have been consistently paying your premiums for several years, your policy should already have a fund value. You can then take what is called a premium holiday, a duration of time wherein you will choose not to pay your premiums.
When you get a new job you can either pay back all the premiums that you missed or just simply pick up where you left off and just pay the current monthly due.
12. What happens to my VUL policy if I become disabled or diagnosed with a critical illness?
When creating your proposal, the insurance agent will either ask you or they might proactively add the waiver of premiums in case of a disability rider and the waiver of premiums in case of a critical illness rider. If the waiver rider is added to your policy, when diagnosed with a critical illness, you will not have to pay your insurance premiums anymore. The insurance company will be the one to shoulder your premiums.
The disability rider is a bit trickier because if it is not a dismemberment, you will have to be “totally and permanently” disabled for a minimum of six months to claim the waiver. It should be noted that if you recover from your disability, the waiver will stop and you will be required to pay your premiums again.
13. What are the alternatives to VUL insurance?
If you are more concerned about the investment rather than the insurance cover, there are a lot of different alternatives you can choose from. If you want to be liquid but still see growth in your money, look into mutual funds, UITFs that are offered in banks, and the currently popular cryptocurrency. Other investments have a longer rate of return like real estate.
VUL Insurance vs. Traditional Insurance and Whole Life Insurance.
If you want to invest your money on your own and just simply want to be insured, there are two main types of insurance: Whole Life Insurance and Term Life Insurance.
For whole life insurance, it simply means that your insurance coverage will last until age 100, as long as you continue paying the premium. A whole life policy is much cheaper to get when you’re still young because the annual premium will stay the same even as you age.
Term life insurance is renewable insurance that will only pay out the sum insured if you die within the covered period. There are yearly renewable terms, while other term insurances renew after 5 years, 10 years, and so on.
Recently, insurance companies have also started to offer health or critical illness insurance and personal accident in their lineup of traditional term insurance. This means that you will not only receive a death benefit but also file a claim when you are diagnosed with a critical illness or get into an accident.
There is no investment in ALL traditional insurance.
References
- Funa, D. (2019). A short history of variable contracts. Retrieved 3 October 2020, from https://businessmirror.com.ph/2019/09/04/a-short-history-of-variable-contracts/
- Price of life insurance overestimated by almost 400%. Retrieved 3 October 2020, from http://www.actuarialpost.co.uk/article/price-of-life-insurance-overestimated-by-almost-400—8019.htm
- Funa, D. (2017). Life-insurance proceeds are exempt from execution. Retrieved 3 October 2020, from https://businessmirror.com.ph/2017/06/06/life-insurance-proceeds-are-exempt-from-execution/
Written by Reggie Sison, RFC, REP
Reggie Sison, RFC, REP
Reggie Sison is a Registered Financial Consultant (RFC) and a Registered Estate Planner (REP) from the International Association of Registered Financial Consultants (IARFC). She is a freelance writer and a frustrated relationship guru. To destress, she likes to create flowers from recycled ribbons and paper, and read fantasy and horror novels.
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