Advertisements
HEADLINES

Ask Geri: VUL Insurance or Mutual Funds?

Get both! The “or” approach may be stemming from the fact that VUL and investment funds do have some overlaps and maybe you want to avoid the redundancy and the repetition to sort of maximize your investments. But they do have distinct purposes and benefits that the other cannot provide.

Rate this:

Hi Geri,

I am planning to make an investment in mutual funds. I’ve been asking different individuals what is the best plan. Which is way better, mutual funds or VUL? 

I also would like to know what companies offer VUL. How much is the minimum deposit and the subsequent cash every month? Your blog is a great guide for a newbie like me. Thank you! ^_^

– Aken via Ask Geri

askgeributtonwhite_smaller_zpsa277e917

Hi Aken,

Congratulations as you are considering various investment options. My answer to your question is “invest in both” — as much as possible, you should have both VUL (variable unit-linked insurance) and mutual funds or UITF.

The “or” approach may be stemming from the fact that VUL and investment funds do have some overlaps and maybe you want to avoid the redundancy and the repetition to sort of maximize your investments. But they do have distinct purposes and benefits that the other cannot provide.

VUL Insurance
VUL is primarily meant for protection in case of illnesses, accidents, hospitalization, disability, and death. VUL aims to protect you as the investor, and in case of your death, it protects your dependents via financial support that normally they would get from you while you were still alive. After emergency funds, insurance is usually the next step that investors should establish before investing in other risky options. Here’s our detailed guide for newbies.

On top of the protection portion, VUL does come with an investment portion that works more or less like a mutual fund. But usually, it takes a few more years (e.g. 3 years from starting the VUL) before your monthly investment is fully translated into mutual funds investments because in the first few years (e.g. first 30 months), your monthly investment is allocated for protection purposes (i.e. insurance premium) since you are already protected upon opening of the VUL. The investment portion in your VUL may be withdrawable and used for various purposes such as tuition fee, retirement, etc. Overall, it is a good long term investment.

Mutual Funds
Basically these are just pooled funds managed by investment companies. This does not give you ready protection (unlike VUL) on top of your investments, so what you invested here (plus the growth and less the losses), is what you get. However, most of the what you invest since Day 1 is really used to buy investment units, as such there is no need to wait for 30 months or so before what you save gets invested. As such, the growth of your investments here may be faster than that in the VUL. This is good for medium term investment objectives.

Verdict
VUL enables you to accelerate your protection needs, plus that of your financial dependents. As I’ve previously said, it is the quickest way to ensure that you die at least a millionaire. Then on the side, there’s an investment portion which adds up to your benefits in case you die, or which you may withdraw for various purposes. Some actually assign their VUL investments as retirement and death funds.

Then the mutual fund can serve as a diversification tool and to serve other purposes such as for tuition, home purchase later on, etc. Likewise, the VUL and mutual funds provider may actually have different fund managers, and you may also opt for balanced fund in your VUL, then equity fund in your mutual fund, so again, you get to enjoy the expertise and benefits of both worlds.

Juan might ask why not just open a traditional insurance (with protection only) and open a mutual fund? VUL was actually created because Filipinos would rather invest than protect themselves but classical approach is to cover your *ss first before risking your money. Personally, I still prefer VUL than traditional insurance.

Most of the insurance companies in the country actually offer VUL. Yours truly is also a financial consultant for one of the leading VUL providers. If you need some sample computations, then check this article for details.

Photo: Loan Officer by  MarkMoz12 

Advertisements
About Geri (348 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.

Comment here.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: