I want to apologize beforehand to my friends and relatives who are financial advisors of Insurance companies. That said, the aim of this post is to educate people about some misconceptions and sales pitches of VUL Insurance agents.
What is VUL?
VUL is simply an insurance with an investment rider. So when you get a VUL Insurance plan, the money you’re putting in mostly goes to paying your insurance coverage, and a smaller portion is allocated to a mutual fund that the insurance company manages.
To be frank, there shouldn’t be a need for a VUL Insurance plan at all. VUL Insurance was created as a way to entice people to get insurance by fronting the investment rider.
Now don’t get me wrong, I am all for insurance coverage. It is a must for people with dependents to ensure that their loved ones don’t get burdened in the event that they die early.
That said, if it’s insurance that you need, you can simply get a term insurance. If your main goal is to invest, there are other better options out there.
I have a separate post as to Why You Should Think Twice in Getting a VUL Policy.
VUL as a College Fund
This is a weird sales pitch: advising parents to get VUL Insurance for their kids or babies stating that the fund can be used when the kid grows up.
Saving up for a college fund is definitely a good plan, but getting VUL for a kid isn’t the right way to do it. Remember that most of the premium goes to paying the life insurance coverage. You, as the parent and breadwinner, need life insurance coverage in case of an untimely death but your kid doesn’t need one at this point in time. Instead of life insurance, health insurance would be a better choice.
Now if you want to maximize your money for your kid’s college education, MP2 is a better option than VUL Insurance. Of course, you can’t put it under your child’s name but you can create an MP2 account under your name for that purpose.
VUL as a Mortgage Redemption Insurance
If the life insurance of VUL is supposed to be used as a financial cushion for the deceased’s loved ones, why is it being pitched as a replacement for MRI?
For those who are not familiar with MRI, it’s an insurance that you pay for when you sign up for a housing loan. What it does is pay for the remaining housing loan amount in full in case of the death of the borrower.
Now if you use VUL Insurance for your MRI and you actually die, your life insurance coverage goes to paying off your housing loan. Though that sounds great and all, what about the immediate needs of your loved ones? And what if your actual insurance coverage isn’t enough to pay off the full housing loan amount?
Having multiple VUL plans
I’m not sure if FAs are hardcore advising this but I’ve seen folks mention that they have multiple VUL plans. Like for real? Okay, you already made a mistake of getting the first one, don’t make another mistake by getting a 2nd one.
What’s your purpose for getting a 2nd VUL in the first place?
- Increase your insurance coverage? Then get term insurance.
- To invest more? Then check MP2 or WISP Plus (if you’re not keen on investing in the stock market).
Kuro-kuro ni Kuya Well
Heto, diretsahan na. In terms of the “investment” part, VUL is better than having your money in a commercial bank that earns a measly 0.0625% interest per annum or simply using a piggy bank. That said, there are other better investment options available if you’re just willing to do your due diligence.
In a nutshell, VUL is for those who are interested in investing pero walang time or ayaw magresearch ng investment opportunities. It’s not the worst thing but you’re not maximizing the potential earnings of your money.