Variable Universal Life insurance (VUL) is a life insurance plus investment program rolled into one. That’s the easiest explanation that I can provide. If it’s still unclear to you, this insurance policy is offered the most by “financial agents” from Sun Life, Pru Life, Insular Life, and other companies with the word “Life” included in their company name.
How does VUL work?
A policyholder will pay a premium to the insurance company which will be split into two: insurance cost and cash/fund value. The insurance cost covers the death benefit, while the cash/fund value is invested in various investment options which will be indicated in the policy.
Most VUL policies have the option to withdraw a portion of the cash value at a given point.
Pros of getting a VUL policy
- You have life insurance coverage so your loved ones won’t suffer financial burdens in the event that you die early.
- The cash value may pay for the insurance cost in the event that you’re cash-strapped or don’t want to continue paying.
- It could be good for those who don’t know how or where to invest.
Cons of a VUL policy
- High management fees. Did you know that for the first 5 years, a big bulk of the premium goes to management fees?
- Only a tiny amount goes to the cash value or investment portion of the policy.
- Charges (insurance cost and management fees) on some VUL policies even go up when you’re close to retirement age which will then be taken out of your cash/fund value.
- There’s no such thing as a 5-year or 10-year payment plan. You will either have to continue paying beyond those years or your cash/fund value will pay for your premium which could eventually drain it.
Blogger’s Note
Simplehan ko na lang. VUL is not something I would recommend at all. If you’re after life insurance, then I suggest that you get term insurance instead. They’re way cheaper. I’ve seen one that offers a 1 Million life insurance coverage (plus another 1M for an accidental death benefit and 1K Daily Hospital Income benefit) for just 416 pesos (price may increase depending on your age) per month.
Now if you’re getting VUL solely for the investment portion of it, then go for a different investment vehicle. Matutulog lang ang pera mo dito. Worse, baka lugi ka pa. Sayang. VUL is actually insurance with an investment rider and not the other way around.
If you want both life insurance and investment, I suggest going for the BTID (Buy Term Insurance, Invest the Difference) strategy. So kuha ka ng term life insurance tapos yung matitira iinvest mo somewhere like Pag-IBIG MP2.
I’ll have a separate blog post comparing VUL with the BTID strategy soon, so watch out for it.