What is a VUL?

VUL stands for Variable Unit Linked or Variable Universal Life. It is a financial product that provides life insurance and an investment feature.

VUL was introduced by PruLife UK in 2002 in the Philippines. This led to the rise  of other investment types such as UITF and Mutual Fund.

VUL, UITF (Unit Investment Trust Funds), and Mutual Funds are pooled funds. The pooled fund is then managed by a fund manager. The main advantage of pooled funds is that for a minimum amount such as P1,500/month, you are able to buy shares of Ayala, SM, PDLT, Meralco, etc through the fund which will cost more than P10,000 if you bought the stock individually in the stock market.

For now, let’s just talk about VUL. Next week, I will discuss the differences of VUL, UITF, and Mutual Funds.

What are the Benefits of a VUL Plan?

Below are, what I believe, the top 3 benefits of a VUL:

1. VUL is a 2-in-1 Plan

VUL provides a protection and investment plan. It can provide Life Insurance, Disability Insurance, Critical Illness Insurance, Personal Accident Insurance, and Hospital Income at the same time an Investment Platform.

With a small amount of savings per month, you can get adequate protection at the same time have access to invest in the stock and bonds market.

2. VUL has different payment plans and you don’t need to pay FOREVER.

There are 3 common payment plans for VUL: Regular Pay, Limited Pay, and Single Pay.

They have their own features and uses depending on your financial objective.

REGULAR PAY

The Regular Pay provides the highest protection at the least possible cost but you need to pay it regularly, i.e. until you die. But because there is an investment component (Fund Value), there can be a time that the Fund Value can pay for the charges and let the plan pay for itself (but this is not guaranteed).

The Regular Pay is usually used when the objective is Protection (Life, Disability, and Critical Illness Insurance) and for the purpose of Estate Planning. This can also be used for Retirement Planning since the objective is to create a Habit of Saving. You save for retirement until you stop working.

There are insurance companies whose Death Benefit is the Sum Assured (Insurance) AND Fund Value (Investment). On the other hand, there are companies whose death benefit provide ONLY the Sum Assured OR Fund Value. (It is best to ask this from your wealth planner/ life insurance agent).

The minimum monthly premium for this plan is just P1,500.

LIMITED PAY

The Limited Pay Plan provides adequate protection at the same time you only pay it for a Limited Time (5, 7, 10,  or 15 years). The fund then pays for itself and you get protection until the max age limit, for example, until age 99.

This plan is best for millennials who wants to start investing and develop the habit of saving. This plan can also be used for College Funding, Medium to Long Term Savings (house, car, and grand vacation), and Retirement.

The minimum monthly premium for this plan is just P1,500.

There are also new limited pay plans in the product called Elite Products that provide higher protection and fund allocation with a limited paying period for a higher monthly premium.

SINGLE PAY

Single Pay Plans are one-time pay that provides 125% protection. It gives a guaranteed 125% insurance coverage even if the fund value becomes lower due to market performance. But when the fund value is higher than guaranteed amount, the death benefit is the higher value.

This is great for people who has money placed in a savings account or time deposit and wants to have their money work harder for them. This can also be used in Medium to Long Term Savings, Retirement Planning and Estate Planning.

The minimum investment amount for this plan is P100,000.

3. VUL can be used as a SHIELD against ESTATE TAX and your CREDITORS

Since VUL is an insurance product, the sum assured is not part of the gross estate and can’t be subject to the 20% Estate Tax (as long as the beneficiary is irrevocable).

As of the moment, the Fund Value is not being computed as part of the gross estate since it is a proceed from a Life Insurance policy.

And because VUL is an insurance product, the creditors can’t touch the death benefit and the investment component as ruled by the Insurance Commission.

Saving in the Bank vs. Investing in VUL

Now if you already have your Emergency Fund and a budget, below are the advantages of investing in a VUL account than saving in the bank.

What I like with VUL is that even if you just have invested 1 month, the coverage is already enforced.

For example, if the insured is diagnosed of a critical illness after 6 months, even if he just paid 6 months of premiums, he gets the full benefit of the coverage such as P1Million.

But if it is placed in the bank, the account holder will just get 6 months worth of savings.

To end, what is important is ACTION! SAVE and INVEST as EARLY as you CAN!

Your Millennial Wealth Planner,

Harold Q. Gardon, CWP, CEPP


How do you find the article? Do you have any questions? Please feel free to message me if you want me to discuss a particular topic or if you are seeking financial advice.

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