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Ask Geri: How Variable Unit Linked (VUL) Insurance Works?

The investment portion, is not guaranteed, it may have gains or it may incur losses, and it is withdrawable by the policy owner. Every month of savings, the portion that goes to investments is used to buy units in the funds chosen by the client.

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Hi Geri,

I’m from the Philippines and currently working here in Saudi Arabia.

I want more information regarding VUL. Who are the trusted providers? How does it work? I am xx years old, single, and earns $x,xxx per month.

Hope to receive your reply soon.

– Dan from Saudi, via Ask Geri email page

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Hi Daniel,

Thank you for your email. Insurance in general is very much a factor of age, the earlier you start your coverage, the better since you are still deemed healthy and less prone to sickness (brought by ageing or lifestyle, etc) and of course, lower risk of death. Insurance providers will also assess your medical condition, either via physical /medical examination or via investigations of any existing records from medical bureaus. Other factors considered are risks present in your current job, your location (high risk countries?), hobbies and sports you engage in (if any is risky), and lifestyle (smoker, heavy drinker, taking medications). You also have to be physically present in the country to be able to sign documents, and for the agent to know and assess you more.

In a previous post, I discussed two basic types of life insurance: simple/traditional life insurance and variable unit-linked (VUL). Now more on VUL.

Unit-linked

Filipinos prefer to invest than protect themselves, hence a mixture of both was born. VUL is precisely unit-linked. Premiums paid, say monthly, are allocated in such a way that portion goes to protection (insurance coverage) while another portion goes to investments (living benefits). VULs usually have investment tenors, such as 5 years, 10 years etc so you don’t need to save for the rest of your life and still be protected and insured until the day of death (and in between).The protection portion is guaranteed and fixed (vs open pre-need plans), such as benefit amount upon death, upon disability, upon critical illness, upon hospitalization, personal accident, etc. The death benefit is a given in all VULs (for dependent beneficiaries) while the other benefits may be included as optional add-ons or “riders”, for the benefit of policy owner.

The investment portion, is not guaranteed, it may have gains or it may incur losses, and it is withdrawable by the policy owner. Every month of savings, the portion that goes to investments is used to buy units in the funds chosen by the client (equities, bonds, time deposits, etc). This is much similar to how UITF / Mutual funds work. These units change in value over time (hopefully increase in value), and is managed by the fund managers, and not by the client. The longer the investment horizon is, the higher chances that the investment fund will gain and grow. The more regular the investments are (say monthly), the better since cost-averaging is achieved.

Trusted Providers

I’m a licensed financial consultant for an insurance provider so I’d rather not name issuers in this post. Nonetheless, check this link from Insurance Commission on the biggest providers in terms income from variable insurance premium. As my mentors keep on saying, any issuer is good, preferably in the top 5 or top 10, and hopefully not the smaller players / last placers (just like in banks). Contact me separately for a sample presentation.

VUL Policy Illustration (based on my affiliation with a VUL provider)

Age: 26 years old (note 1)

Gender: Male

Premium: PHP3,058 per month or PHP36,700 annually

Chosen Policy: 10 years to invest, investment portion is 50% Growth Fund, 50% Equity Fund

Assuming normal assessment, and policy gets approved, here are his benefits:

 

Guaranteed Benefits

PHP1,000,000 Death Benefit (plus investment value, less accelerated claims, if any)

PHP300,000 in case of Total Permanent Disability (note 2)

PHP360,000 Emergency Fund in case of Critical Illness (note 2)

Waived Monthly Premium in case of Permanent Disability or Critical Illness within Years 1 to 10. Policy and benefits will not lapse.

Projected Investment Values (withdrawable funds, not guaranteed, but big chances if long term)

PHP1,255,925 projected investment value by the time client is 48 years old (first child
goes to college!)
 (note 3)

PHP5,646,064 projected investment value by the time client retires at 65 (note 3)

All these for a total amount saved of only: PHP367,280 (total for the next 10 years)
Peace of mind and financial security: PRICELESS #especiallyforbreadwinners

Notes:

1. Assumed to marry before 30 y/o, first child by 30 y/o, child goes to college when client is  48 y/o
2. In case of  accelerated claim, benefit amount is advanced from the PHP1,000,000 death benefit. The amount that remains from PHP1,000,000 will be the death benefit plus the value of investments

3. A portion of monthly savings goes to investment funds (of your choosing) for years 1 and 2. By year 3 onwards to year 10, 100% of monthly savings are invested. Projections here are based on 10% annual growth. Since these are investments, returns may vary and are not guaranteed. Withdrawals at any point will affect future value of remaining units. Subject to investment income tax. Different from the sum assured which is guaranteed upon claim.

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About Geri (346 Articles)
Founder and main author. Husband, used-to-be-breadwinner, God-made multi-millionaire, employee, financial planner and adviser, investor, stocks trader, entrepreneur, agri-preneur, book author. Firm believer that all Pinoys deserve a richer life. Not a guru, but a forever student of the investments world, a work-in-progress.

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