It's been said in the personal finance world that before you start investing your hard-earned money, you need to set up sufficient financial protections so you can safeguard your income and protect your family from a number of risks that you might encounter along the way.
I couldn't agree more! In fact, most Filipinos fail to invest regularly and successfully because they jump right into investing without setting up the necessary financial "moat" for his or her financial "castle".
This is where VUL comes into the big picture because it lets you have the best of both worlds by giving you the protection of a life insurance and the earning power of a mutual fund.
What is VUL?
VUL or variable universal life insurance is a type of life insurance product that gives you the protection you and your family needs while allowing your hard-earned money to grow through its investment component.
In simple words, VUL is a combination of life insurance and managed funds (life insurance + mutual/managed funds = VUL).
What are the cons of investing in VUL?
Just like any kind of investment vehicles, VUL has its fair share of disadvantages. Let's discuss a few of them:
- No Guarantees - Just like stock and mutual fund investments, the investment component of a VUL policy doesn't guarantee returns. It simply means that there is a risk or a possibility that your investment capital could suffer losses along the way depending on the performance of the fund that you've chosen for your VUL policy.
- Higher Costs - Because VUL is technically two distinct product packaged into one, your costs are also higher compared to other types of life insurance. Before investing in this vehicle, you should know that not all of the premium that you will pay will go directly to the investment component of the VUL. Depending on the focus of the VUL plan that you are getting (whether it is insurance focused or investment focused), your premiums will be divided into three parts: insurance charges, investment capital, management fund fees.
- Monitoring is Required - Just like most investment wheels, the performance of the investment component of a VUL policy should be monitored by the owner if he or she wants to maximize his or her money's earning potential. Monitoring your VUL's fund/s performance is important so you can determine if you need to move your money to different funds depending on what is happening on the current fund you've chosen. This could mean investing a few hours weekly to monitor your fund/s' performance.
What are the pros of investing in VUL?
Now, let us talk about the advantages that you can get from a VUL policy:
- Death Benefit - Compared to other managed funds, VUL policy gives you and your loved ones the protection of a life insurance (because it is a life insurance product in the first place). The moment you are taken out of the picture in your family's lives, they will receive a death benefit that they can use to continue and even improve their current and future lifestyle. Other managed funds can't offer you the same benefit.
- Tax Advantages - VUL is exempted from withholding tax or tax on profit not to mention that it is also not subject to estate taxes. Meaning, when you die, your family will get the benefits of your VUL policy and the BIR won't be able to freeze these benefits until necessary taxes are paid compared to other assets that are subject to estate taxes.
- Fund Value - Compared to temporary life insurance products, VUL allows part of your premium to grow through its managed funds. You will have the flexibility to choose which funds you want to invest in and you will also have the freedom to change funds according to your preference.
Is VUL for me?
To be honest, the answer to this question truly depends on your financial goals, standing, and your level of knowledge and willingness of involvement when it comes to investing your hard-earned money.
If you are the type of person who wants permanent life insurance and who has no time or sufficient knowledge to invest part of your money and you want professionals to do it for you, then VUL is the right product for you.
But if you only need temporary life insurance and you have the time and the knowledge to invest your money on your own, then the BTID (Buy Term, Invest the Difference) approach is perfect for you.
Again, it will truly depend on your financial goals, current financial standing, your knowledge about investing, and your time and willingness to get involved in the process of growing your money.
I'm interested to receive a VUL proposal and to learn more about this vehicle. What steps do I need to take?
If you want to receive a personalized VUL proposal, then click on the Messenger button on the lower-right corner of this website. I'll be more than happy to create a customized proposal for you according to your needs and budget.