Variable Universal Life (VUL): What to Know & Its Advantages

VUL Insurance – A Good Investment

You might have been sold a variable universal life insurance policy by your financial counselor or a neighbor who sells insurance. You have concerns, and you should. VUL, or variable universal life, is a sophisticated product that isn’t suitable for everyone. A variable universal life insurance policy’s cash value may be invested to increase the account’s worth.

Mins to Read: 15 minutes

Age: 18-60 years old

Life insurance contracts differ from one another. The fundamentals of a variable universal life (VUL) insurance policy are examined in this article, along with some of its advantages and disadvantages.

What is VUL?

Variable universal life insurance has the potential to be an effective tool for creating and safeguarding wealth. It also goes by the name VUL and combines the tax advantages of a brokerage account with the investment opportunities of universal life insurance and the lifelong security of whole-life policies. VUL is not for everyone because the plans are complicated and offer fewer guarantees than other types of life insurance, but it might be a good option for confident investors.

Beneficial Features

The main characteristics of variable universal life insurance that distinguish it from competing products are:

Builds Cash-Value:

The cash-value portion of VUL policies increases over time. It operates through an integrated savings account that receives funding from a part of the policy’s premiums and is invested to increase the policyholder’s lifetime. Depending on the kind of policy, you can withdraw money, borrow money, or surrender the procedure to access your cash value. You may use a life settlement to sell the policy to another party.

Flexible premiums:

Life insurance premiums can either be set or adjustable. If the premium for your policy is fixed, you must pay it or risk having your coverage lapse. When the premium is flexible, you can pay more or less than what is advised. You would pay more for VUL insurance to accelerate the growth of your cash worth. It might cost less to operate under short-term financial restraint. The insurer utilizes your cash worth to meet the policy’s minimum expenses when you pay a reduced premium. If your cash value is insufficient, the insurer will need more payments to maintain your insurance status.

Fixed Death Benefit:

Depending on how the savings element of the policy develops over time, some policy types change the size of the death benefit. That is not how variable universal life insurance operates; the death benefit is always guaranteed, regardless of how well the investments in the policy perform. The death benefit might change if you borrowed against your cash value under a VUL insurance policy.

Investment Alternatives:

Your VUL cash value is invested in funds known as “sub-accounts,” each of which has a distinct investment strategy, such as blue-chip stocks or foreign bonds.

You choose a group of sub-accounts when you start your VUL insurance that corresponds to your risk appetite and overarching financial plan. Your premiums are then invested in the sub-accounts of your choice after deducting any administrative and insurance expenses.

Cash value increases over time based on how those sub-accounts perform. Your cash value balance will grow more quickly if the subaccounts perform well. You can experience a decline in cash worth if the sub-accounts perform poorly.

Who could gain from a variable universal life insurance policy?

A variable universal life insurance policy might be most advantageous for one of three groups of people:

Experienced investors:

A variable universal insurance policy is trickier to understand than other types of life insurance. Investors aware of the risks associated with VULs, the stock market, and mutual funds may find this sort of life insurance coverage to their advantage.

High net worth people:

Estate preparation might be essential to lowering your heirs’ tax obligations after your death. Your variable universal life insurance policy may enable you to provide your heirs a handsome nest egg tax-free, depending on the estate tax regulations in your state at the time of your death.

Retirement account maxed out:

If your retirement account has already reached its annual maximum, a variable universal insurance policy can be the perfect place to invest a lump sum of money. This choice probably doesn’t make sense unless you’ve already used up all of your alternatives for other retirement plans because a VUL carries more substantial fees and insurance costs.

Comparison to Other Types of Life Insurance

Due to its similar name and incorporation of essential elements from universal life and variable life, variable universal life is simple to mistake with these other types of insurance policies. The following table compares VUL insurance to term, whole, and universal life insurance, along with a brief explanation.

Benefits	Variable universal	Term	Whole	Universal
Fixed death benefit	Not covered	✔	✔	Not covered
Access to cash value	✔	Not covered	✔	✔
Affordable coverage	Not covered	✔	Not covered	Not covered
Permanent protection	✔	Not covered	✔	✔
Potential investment growth	✔	Not covered	Not covered	Not covered
Premium flexibility	✔	Not covered	Not covered	✔
Tax advantages	✔	✔	✔	✔

There is one catch: increased risk goes hand in hand with a greater possibility for growth. Your cash value may change, as with any stock market investments. Both gains and losses are possible with your investment.

Compared to term life insurance

Contrary to VUL, term life insurance coverage is only offered for a limited time, typically between 10 and 30 years. Because it has no cash value component and is only meant to pay out to your dependents a tax-free income if you pass away during the term, it is regarded as pure life insurance.

Additionally, buying term insurance can sometimes be inexpensive and straightforward. A small monthly payment can help you secure a sizeable death benefit if you’re young.

Compared to whole life insurance

A whole life insurance policy offers greater guarantees than a VUL and offers permanent protection as well as tax-advantaged cash value. In addition to an entire life insurance policy’s cash value increasing at a guaranteed pace, the premium and death benefit will stay the same for life. However, over time, the market-based subaccounts of a VUL policy might offer more potential for cash value growth, provided you are ready to endure the adverse risk of investment losses. Mutual firms (such as Guardian) may also offer dividends that can improve cash accumulation.

Compared to universal life insurance

Along with the adjustable premiums and death benefit of a VUL policy, a standard universal life policy offers perpetual coverage and tax-advantaged cash value. However, there are no subaccount investments. Instead, a minimum interest rate is guaranteed to increase cash value. The performance of the insurance company’s assets can cause values to grow more quickly than the guaranteed rate, even if these plans don’t pay dividends. However, a VUL policy’s market-based investments may provide more significant potential for cash growth and the downside risk of investment loss.

How VUL Insurance Works?

A portion of the premiums for a variable universal life insurance policy goes to the insurance provider to pay for costs and the death benefit. The remainder is placed into a subaccount of chosen investments, increasing your insurance’s cash value.

You can utilize the cash value to pay for upcoming premium installments, borrow against it, or withdraw money over time. Remember that unpaid loans and partial withdrawals could lower your cash value, make your policy lapse, or impact your taxes. Depending on how your policy is set up, the amount of money your beneficiaries get after your death may differ.

Two Elements

By promising a minimum cash value growth, the life insurer accepts the investment risk in a whole life policy. The VUL policy’s investment risk is transferred to the insured by the life insurer.

The chance that the separate account could provide poor returns, lowering its cash value, must be assumed by the insured. Losses that are significant and ongoing jeopardize the financial deal. As a result, the insured may be required to submit greater premium payments to pay for the insurance and restore the cash value.

Subaccounts

The structure of the separate subaccount is similar to a mutual fund family. Both provide a variety of stock and bond accounts in addition to a money market account. Some policies may limit the number of transfers into and out of the funds. A policyholder may be required to pay a higher premium to cover the cost of insurance if they have surpassed the annual limit for transfers and their investment account performs poorly.

Calculation

The quantity of money in your account will fluctuate based on the premiums you pay, the cost of your policy’s fees, and the success of the investments you select.

Example: You pay Php 100,000 as the initial premium for a variable life insurance policy. You divide that payment into two funds: one for stocks (Php 50,000) and one for bonds (Php 50,000). The stock fund makes a 10% return the following year, while the bond fund makes a 5% return. Your account will be worth Php 107,500 at the end of the year (Php 55,000 in the stock fund and Php 52,500 in the bond fund), with fewer fees and expenditures.

Who Provides VUL Insurance in the Philippines?

Numerous VUL products are offered by reputable insurance providers in the Philippines, including AXA Philippines, Manulife, BPI AIA, Pru Life UK, and Sun Life, to name a few. A minimal monthly investment in a VUL policy ranges from Php 1,500 to Php 3,000. The premiums are paid and kept for a considerable time—usually five to twenty years.

Philippines’ Best VUL Insurance Products

In the Philippines, there are several excellent options for VUL insurance. Here are a few you can research and contrast:

PRULink Assurance Account Plus (Pru Life U.K.)

PRULink Assurance Account Plus is one of the greatest VUL investing alternatives in the Philippines. Along with paying reasonable premiums for living and death benefits.

Additionally, you can strengthen your plan with more riders to guarantee financial security in case of an accident, hospitalization, or severe illness. You won’t have to pay any surrender fees if you need to withdraw all or part of the fund value of your policy.

Payments under this investment-linked life insurance policy are made up to age 100. The coverage is in place for 100 years in total.

Applicants for this plan must be between the ages of 0 and 70. The first year’s minimum premium is 15,000 rupees. You will receive a portion of your annual premium for years 11 through 20. You can use this money to buy more units and raise the fund value of your insurance.

Sun MaxiLink Prime

Sun MaxiLink Prime gives you protection and peace of mind while you develop your money by combining the advantages of an investment with a life insurance policy.

You receive a guaranteed life insurance benefit that is at least equal to the face value of your plan or double that amount. Additionally, you can add riders for additional defense against diseases, impairments, or mishaps.

With the assistance of the professional fund managers at Sun Life, select from various investment fund options based on your risk tolerance and investment objectives.

It has a minimum 10-year payment term. In addition to your regular premium payments, you can make top-ups or excess payments. You will get a loyalty bonus that you can utilize for top-ups or excess payments if you maintain your Sun MaxiLink Prime policy for at least ten years.

Manulife FutureBoost

Are you looking for an inexpensive VUL investment in the Philippines? Check out Manulife FutureBoost for a low-cost plan that includes investing in life insurance.

You receive benefits when you pay on time or more than your monthly premium. With several add-on protection benefits, you may quickly expand your coverage as needed.

2% of your premium will be added as an incentive when you pay your premiums for an extra five years.

Additionally, you are eligible to receive a premium bonus that will be added to your fund and is equal to 5% of your annual premium (for a total of 40% for the pay period).

Access to numerous professionally managed funds is available to you with Manulife FutureBoost. The value of your fund may reach $1.9 million by year 20 of your coverage.

AXA Philippines life basiX

You may combine investing and protection with AXA Philippines Life basiX. A guaranteed lump sum cash payout, equivalent to your life insurance coverage or the sum insured under your policy, whichever is greater, will be given to your beneficiaries.

For life basiX, life coverage begins at Php 400,000. Pay for at least ten years to allow your investment to grow. To grow your money more quickly, you can pay for more time than ten years. Alternatively, add top-ups of at least Php 5,000 to your regular premium payments to increase your earning potential and hasten the achievement of your financial objectives.

Additionally, you gain access to top-performing funds and can benefit from Metrobank Trust Banking Group’s expertise as one of Asia’s top fund managers.

You will get a bonus sum that you can contribute to your preferred AXA fund if you maintain the active status of your policy for the whole 15th and 25th years. If your investment horizon and preferred level of risk alter in the future, you can even freely move to a different AXA Fund up to eight times each year.

Insular Life Wealth Assure Plus

Wealth Assure Plus from Insular Life is a different scalable insurance plan with an investment element. You can maintain control over your finances by achieving your savings and investing goals as well as your needs for life and health insurance.

By including disability, accident, health, payor, or term benefits and riders, you can alter your Wealth Assure Plus plan. Add or remove riders as needed during your plan, or select the payment and top-up options that work best for your budget to reach your financial objectives faster.

Investment in Wealth Assure Plus is both affordable and accessible. It allows you to maximize your investment with low fees and monthly top-ups for as little as 500 yen.

FWD Set for Life

Another VUL insurance option that provides investment and life protection up to age 100 is FWD Set for Life. Add-ons like LifePro, RecoveryPro, HealthPro Lite, and HealthPro can help you tailor your coverage.

In addition to purchasing life insurance, you can invest your money in various funds that provide better returns than standard savings accounts.

In the event of a significant critical illness or a permanent disability, subsequent premium payments are waived. Your beneficiaries will get an extra monetary benefit if you die in an accident before age 75. (3x benefit if it happens on a covered Philippine holiday).

Additionally, you’ll get a loyalty incentive once every five years, starting in the tenth year of your FWD VUL insurance.

BPI AIA Invest Peso Max

In the Philippines, the Invest Peso Max is a single-pay VUL insurance that offers guaranteed life protection and is valued in pesos. It aids in retirement planning and saving.

Optional benefits, including critical sickness, accident, and health coverage, as well as additional life insurance through term insurance, can be added if you want a complete plan.

If you want to increase your retirement fund, spend more toward your premiums. You can quickly take a partial or complete withdrawal of the fund value if you need to access your money.

BPI Investment Management, Inc. (BIMI) and BPI Asset Management and Trust Corporation are responsible for the expert management of the Invest Peso Max funds (BPI-AMTC). Knowing that only the best financial professionals handle your money gives you peace of mind.

Risks of VUL

1. Not a method for making immediate savings:

A variable life insurance policy is intended to offer a death benefit or to assist in achieving other long-term financial goals.

2. Policy failure:

Your policy may lapse if you do not keep enough cash value on hand to cover the costs of the coverage. That indicates that it will expire worthlessly and that no death benefit will be paid to your recipient. There are many lapsed life insurance plans.

3. Policy costs and fees:

Policy costs and prices could be substantial. Deductions from premium payments, surrender charges, and hefty recurring fees and expenses related to policy owners are a few examples.

4. Potential loss:

A variable life insurance policy risks financial loss, including the loss of your initial investment.

5. Risks connected to investing possibilities:

The performance of the investment alternatives you select will determine your investment amount and any returns.

Each underlying fund can be subject to particular risks. Before choosing an investment, you should read the prospectus for that choice. Regarding each fund option, you should consider several variables, such as the fund’s investment objectives and policies, management fees and other costs, the fund’s risks and volatility, and if the fund adds to the diversification of your entire investment portfolio.

6. Assurance firm risk:

All guarantees, including the death benefit, are supported by the insurance firm that issues the policy due to its strong financial position. It’s possible that the insurance provider won’t be able to fulfill its commitments to you if it faces financial difficulties.