An insurance agent, who happens to be your friend or relative, wants to sell you VUL insurance. But you’re not sure if getting this type of insurance is a wise investment decision. Is VUL worth it? What is VUL insurance in the Philippines, anyway?
A VUL insurance policy comes with pros and cons. Understand what VUL is, its benefits, and its risks before investing your money. Here's an objective guide to help you decide whether to purchase a VUL plan or explore other options.
What is VUL and How Does It Work?
Variable Universal Life Insurance, also known as Variable Unit-Linked Insurance or VUL, is a permanent life insurance and investment rolled into one product. It provides living, death, and disability benefits plus an investment component.
How VUL Works
In the Philippines, the usual practice is that 5% of the VUL insurance premium goes to the insurance cost, while 95% goes to investments.
It's crucial to highlight the VUL meaning, especially the terms "variable" and "permanent":
- Variable means the investment returns vary depending on the rise and fall of the markets where the premium is invested.
- As a permanent insurance policy, VUL won't expire, and you're insured for as long as you keep paying your premiums. This makes it different from term life insurance, which lasts for only a certain period, typically from 20 to 30 years.
VUL is a popular financial product in the Philippines because it offers financial protection whether the policyholder dies too soon or lives too long. Your beneficiaries will receive the proceeds if you pass away early. If not, you can use the investment returns from your VUL plan to fund your retirement.
VUL Insurance Pros and Cons in the Philippines
There are many advantages to investing in a VUL policy. But just like other insurance plans, VUL might not be for everyone. Check out the pros and cons of VUL below so you can determine if VUL insurance is a good investment for you.
Advantages of VUL Insurance
1. Tax-Free Death Benefit Payout
The main advantage of VUL insurance over investment-only products like mutual funds, UITFs, and stocks is that the insured's beneficiaries will receive the death benefit and investment returns without paying an estate tax to the government. However, note that this tax exemption applies only to irrevocable beneficiaries.
In contrast, if you put your money purely into investments and pass away, your earnings will become part of your estate. Your beneficiaries won't get the proceeds until they pay the estate tax.
2. Ability to Withdraw Cash
Unlike term life insurance, which provides only death benefits, VUL offers living benefits that policyholders can enjoy while they're alive. The liquidity of VUL insurance is one of its best features. You can partially or fully withdraw the policy's fund value, which is the investment portion of a VUL policy.
You can withdraw from a VUL investment, tax-free and interest-free, to pay for emergencies, medical bills, college tuition, retirement, or any financial need. You can even settle your unpaid loans to save your property from foreclosure or repossession if you have sufficient fund value in your VUL policy.
3. Health Insurance Coverage
Newer VUL insurance products in the Philippines come with optional benefits, also called riders, that other types of life insurance don’t offer. These riders include insurance coverage for critical illnesses and accidents and income protection for hospitalization.
Depending on the policy, your premiums may be waived when you're diagnosed with a critical illness like cancer, stroke, or kidney failure.
4. Potential to Earn Higher Investment Returns
VUL brings the same benefits as a mutual fund: diversified and professionally managed investments. These help yield higher returns than other types of life insurance, regular savings accounts, and bank time deposits.
The premium payments are invested in various assets such as bonds, stocks, and money market instruments. Full-time fund managers handle the investments, too, which raises the earning potential of a VUL policy.
5. Forced Savings
Millennials who find it hard to get into the habit of saving and investing can benefit from VUL insurance which forces them to set aside a portion of their monthly income for premium payments.
VUL insurance providers in the Philippines regularly send premium payment reminders through print and electronic billing statements. Insurance agents also personally remind their clients of any overdue payments.
6. More Flexible Premiums
If you have extra funds that you don’t know where to invest, you can put them into your VUL plan. You can use it to top up your plan or as an additional investment to help the fund value accumulate faster.
A VUL policy is a great investment option if you regularly receive bonuses or income from your side hustles. Moreover, your VUL policy won’t lapse if there’s enough fund value to cover the premiums. This means you’ll still be covered, and the policy will remain in force even if you can’t pay your premiums temporarily.
Disadvantages of VUL Insurance
1. Investment Risks
Like any other investment option, VUL doesn't guarantee returns. Investment markets rise and fall—these fluctuations can cause your fund value to go up or down at certain times.
In rare cases, policyholders might lose their investment when the fund value is no longer enough to pay the policy fees. When this happens, the VUL policy gets automatically terminated, and all living and death benefits end.
2. More Expensive Than Other Life Insurance Plans
VUL charges higher premiums than term life insurance. You're paying for the personalized services of your financial advisor (which they earn as commissions) as well as the professional services of the fund manager.
VUL insurance providers charge these costs through management, policy, and annual fees. On the other hand, term insurance charges little to no fees at all.
Is VUL a Good Investment?
Now that you know its pros and cons, is VUL worth it? Or is it better to separate your insurance and investment? The answer depends on your financial goals, needs, and savings discipline.
Who Should Get a VUL Policy?
VUL is an excellent choice for the following people:
- First-time investors just learning the ropes of insurance and investing
- Those who lack time, patience, or discipline to invest
- Entrepreneurs who want their investments bundled with a life insurance policy to protect their assets
- Young parents starting to build their children's education fund
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Which is Better: VUL or Term Insurance?
You're probably wondering whether you should invest in VUL or get term insurance (for protection) and have separate investments (for wealth accumulation).
First, it's important to understand that these are two different products, and using them depends on everyone individually. For example, you may want to avail of term insurance and then do investments on your own. Or, if you want to save and don’t want to monitor your investments on a weekly basis, then getting VUL makes more sense.
Former Moneymax Managing Director Moritz Gastl shares this advice with those who choose to get a VUL product:
"If you go into a VUL bracket, be aware of what you're actually getting into. With VUL, you’re passively investing in a mutual fund that's managed by a VUL company in the Philippines. Understand who is managing that investment—that’s very important.
Also, you need to look at what’s in the basket. For example, if you invest in a VUL product and you’re indirectly investing in a mutual fund, understand what this mutual fund is actually investing in. Does it invest in small and risky financial companies? If you're an aggressive investor, it could be the right thing to do. But if you’re risk averse, then you'd rather not go in that direction."
Where to Get VUL Insurance in the Philippines?
Reputable insurance companies in the Philippines, such as AXA Philippines, Manulife, BPI AIA, Pru Life UK, and Sun Life, just to name a few, offer a variety of VUL products. VUL policies allow a minimum monthly investment of ₱1,500 to ₱3,000. The premiums are paid and held for the long term, typically five to 20 years.
Best VUL Insurance Products in the Philippines
There are quite a few great options for VUL insurance in the Philippines. Here are some you can explore and compare:
PRULink Assurance Account Plus (Pru Life U.K.)
One of the best VUL investment options in the Philippines is PRULink Assurance Account Plus. Aside from paying affordable premiums for living and death benefits, you also get the financial security of investments.
Moreover, you can power up your plan with additional riders to ensure your financial security from critical illness, hospitalization, or accidents. If you need to make a partial or full withdrawal of your policy’s fund value, you won’t have to pay any surrender charges as well.
This investment-linked life insurance plan can be paid until age 100. The duration of the coverage is also until age 100.
This plan is eligible for applicants aged 0 to 70. The minimum annual premium starts at ₱15,000. For your 11th to 20th year, you’ll receive a percentage of your annual premium, which you can use to purchase additional units and increase your policy’s fund value.
Sun MaxiLink Prime
Sun MaxiLink Prime combines the benefits of an investment and a life insurance plan, giving you security and peace of mind while you grow your money.
You get a guaranteed life insurance benefit at least equal to or twice the face amount of your plan. Moreover, you can add riders for more protection against illnesses, disabilities, or accidents.
Choose from various investment fund options depending on your risk appetite and investment goals with the help of Sun Life’s professional fund managers’ expertise.
It’s payable for at least 10 years. You can make top-ups or excess payments on top of your regular premium payments. If you keep your Sun MaxiLink Prime policy active for at least 10 years, you’ll receive a loyalty bonus which you can also use for top-ups or excess payments.
Are you looking for an affordable VUL investment in the Philippines? Check out Manulife FutureBoost, an affordable life insurance plan with investments.
Get rewards when you pay on time or more than your regular premium. You can also increase your coverage when you need to with different add-on protection benefits.
Enjoy an additional bonus equal to 2% of your premium when you extend your premium payments for another five years. You can also receive a premium bonus equal to 5% of your annual premium (a total of 40% for the pay period duration), which will be added to your fund.
With Manulife FutureBoost, you can get access to different expertly-managed funds. By year 20 of your policy, the value of your fund can reach as much as ₱1.9 million.
AXA Philippines life basiX
With AXA Philippines life basiX, you get both protection and investment in one product. Your beneficiaries will receive a guaranteed lump sum cash benefit equal to your life insurance coverage or the amount in your policy, whichever is higher.
Personal emergencies? Make withdrawals from your fund when you need to.
Beef up your protection with optional add-ons or riders like Waiver of Premium (AXA will pay your premiums should you become permanently disabled), Critical Conditions (additional cash benefit if diagnosed with any of the covered major critical conditions), Secure (cash benefit for injuries caused by accidents), Care (fixed hospitalization allowance), and Protector (additional life insurance coverage).
Life coverage for life basiX starts at ₱400,000. Pay for a minimum of 10 years to let your investment grow. You can pay longer than 10 years to build your investment faster). Or make top-ups of at least ₱5,000 apart from your regular premium payments to boost your earning potential further and help you reach your financial goals faster.
You also get to access high-performing funds and leverage the expertise of Metrobank Trust Banking Group, one of the best fund managers in Asia.
If you keep your policy active until its 15th and 25th year, you’ll receive a bonus amount you can add to your chosen AXA fund. You can even switch to a different AXA Fund up to eight times per year for free if your risk preference and investment horizon change in the future.
Insular Life Wealth Assure Plus
Another customizable insurance plan with an investment component is Insular Life’s Wealth Assure Plus. You can stay on top of your finances by meeting your life and health protection needs and your savings and investment goals.
Customize your Wealth Assure Plus plan by adding disability, accident, health, payor, or term benefits and riders. Add or remove riders throughout your plan, or choose the payment and top-up arrangements that are right for your budget so you can achieve your financial goals sooner.
Wealth Assure Plus is an accessible and cost-effective investment. It offers low charges and monthly top-ups for as low as ₱500, allowing you to make the most of your investment.
FWD Set for Life
FWD Set for Life is another VUL insurance plan that offers investment and life protection until age 100. Customize your coverage with various add-ons such as LifePro, RecoveryPro, HealthPro Lite, and HealthPro.
Aside from the life insurance coverage, you can also invest your money in diverse funds that offer higher returns than traditional savings accounts.
It waives future premium payments if you suffer a permanent disability or get diagnosed with a major critical illness. In case of accidental death before the age of 75, your beneficiaries will receive an additional cash benefit (3x benefit if it happens on a covered Philippine holiday).
You’ll also receive a loyalty bonus on the 10th year of your FWD VUL policy, and every five years after.
BPI AIA Invest Peso Max
The Invest Peso Max is a peso-denominated, single-pay VUL insurance in the Philippines that provides guaranteed life protection. It helps you save and prepare for retirement.
If you wish for a more comprehensive package, you can add optional benefits like critical illness, accident and health, and additional life coverage through term insurance.
Make additional premium payments if you want to boost your retirement fund. Should you need to access your money, you can easily make a partial or full withdrawal of the fund value.
Invest Peso Max funds are professionally managed by BPI Investment Management, Inc. (BIMI) and BPI Asset Management and Trust Corporation (BPI-AMTC). With that, you can rest assured your money is being handled only by leading investment professionals.
Alternatives to VUL Insurance
Don’t think VUL suits you? Consider a strategy called BTID (buy term, invest the difference)instead. It involves purchasing a term insurance plan and investing the amount you've saved from the cost difference between VUL and term insurance.
BTID is cheaper than getting VUL insurance. But you need financial discipline and diligence in monitoring market trends to invest on your own and earn high profits. If your goal is to simply invest and nothing more, then choose from mutual funds, UITF, stocks, and other investment options that offer greater flexibility in terms of timing and strategies.
- “ETF”? Easy Investing with ETFs in the Philippines
- UITF in the Philippines: What Makes It the Right Investment for You?
- Grow Your Hard-Earned Money: How to Invest in Mutual Funds in the Philippines
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Whatever insurance or investment product you choose, it should support your financial goals. Study your options well and compare VUL quotes. Don't just rely on what an insurance agent tells you. Buying VUL insurance in the Philippines is a major decision you don't make in just a snap.
-  Term Life Insurance (Investopedia, 2022)
-  Irrevocable Beneficiary (Investopedia, 2021)
-  BTID and VUL: Which one suits me best? (The Manila Times, 2017)
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