Frequently Asked Questions on VUL (Variable Unit Linked or Universal Life Insurance) - Lazy Investing Way

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Tuesday, December 05, 2017

Frequently Asked Questions on VUL (Variable Unit Linked or Universal Life Insurance)


Here's a blog post about some Frequently Asked Questions on VULs (Variable Unit Linked or Universal Life Insurance) that I managed to compile as well as based on the questions I have received so far from my clients.

So, what are Investment Linked Products?
An investment linked product is a non-traditional life insurance plan. It is a life insurance policy with an investment component linked to it. A portion of the premium is allocated to an investment or separate fund. It is both an insurance and an investment (Like a Combo Meal!).

It is a policy that provides for life insurance where the account value at any time varies according to the performance of the separate fund chosen by the policy owner.

How does VUL differ from traditional life insurance?
In traditional life insurance that consists of life and endowment products, the Insurance company decides on where to place the premium. But for investment linked products, you, as the policy owner have the option in choosing where to invest your premiums based on your own choice and risk tolerance (The risk is shared since the policy owner chose a particular fund while that fund is also being management by a fund manager of the insurance company or the like affiliates).

Under traditional life insurance, it is the company which bears the risk by paying the sum insured as stated in the policy regardless of the investment performance.

What is a rider?
Rider is additional protection benefit that can be attached to the VUL policy. This is optional however, the most recommended rider to get is a critical insurance benefit. This is expensive, but it is cheaper if in case you will need it. Other riders are: Total Disability Waiver, Accidental Death Benefit, Female Critical Illness, Hospital Benefit..etc..

Why VUL?
Unlike other investment vehicles, VUL products not only provide benefits for your needs while you are still alive. Equally important, these vehicles give benefits to your loved ones, if you are no longer around to finance their needs. You protect your family from the risk of financial loss by availing of an insurance plan that will provide funds upon the breadwinner’s demise.

For the living, the benefits that VULs can offer are those you will need in the long-term. Examples are wealth accumulation for education, health, and retirement funding.

Being a life insurance product, the living benefit (fund value) or the death benefit of VULs are not subject to garnishment; therefore, the investment placed by the policy owner and the earnings and proceeds from his investment are protected from creditors.

Where is the investment component invested?
VUL products may be placed in any of the following funds depending on your investment objective and risk appetite:

  • It could be Dollar or Peso-denominated Funds.
  • Balanced Fund - invests in government securities, bonds issued by, and term loans extended to, prime Philippine corporations, and short-term money market instruments, and in prime rated stocks that are listed in the Philippine Stock Exchange.
  • Fixed Income Fund - seeks to provide long-term capital preservation from stable and predictable interest payments. This Fund invests in bonds and notes issued by the Philippine government and prime-rated corporations and in short-term money market instruments.
  • Money Market Fund - seeks to provide policyholders with a parking facility to invest their excess funds in a diversified portfolio of highly liquid and less volatile investment securities that aim to preserve the principal invested and at the same time deliver yields relatively higher than the regular saving rate.
  • Index Fund - seeks to provide an individual with long-term total return and capital appreciation by investing in shares of local companies, across all sectors of the market listed in the Philippine Stock Exchange, as a representation of the domestic economy.
  • Equity (or Growth) Fund - typically seeks to provide an individual with a vehicle for long-term growth and capital appreciation by targeting companies in specific sectors listed in the Philippine Stock Exchange, with the potential to outperform the domestic economy.


These are the typical or standard offerings, different insurance companies may offer more varied choices or options for their clients.

Can I invest in more than one fund?
Yes, you may invest in more than one fund provided that your allocation for each chosen fund is at least 10% of your total investment and the total allocation is 100%.

Can I switch fund types according to my risk profile?
Yes, you may switch fund types, most companies have a 'free switch' in a year.

How will I know my payments are being applied in my insurance and investment?
You will get a regular statement of account on the details of your premiums as each company will give you an online account where you can check these. This will show the latest premiums paid, how much the value is and all details of your policy should be available there.

Will my beneficiaries get anything if something happens to me?
Yes, your beneficiaries will get whichever is higher of the fund value or the minimum guaranteed death benefit.

Is it possible for me to withdraw part of my investment?
You can withdraw from any of your funds as long as your policy has a withdrawal value. If your balance after partial withdrawal is less than the minimum required, you must fully withdraw your fund and your policy will be terminated. There may be withdrawal fees in the future or depends on the company really.

Are there charges to be deducted from my premium on a VUL policy?
Similar to other investment vehicles, yes, there are charges and expenses to be deducted from your VUL policy. The following are the typical charges:

  • Insurance Charges - used to cover the payment of the insured’s death benefit. The insurance charge is based on the attained age of the insured.
  • Acquisition and Administration Charges - used to cover all expenses associated with selling and issuing the Policy.
  • Asset management fee – an annual fee covering the investment and management activity.
  • Accounting charge – a fee that covers custody and administrative activity.


What are the typical mode of payments?

  • Physical (through the insurance company customer service center near you)
  • Online (Online Banking - BPI, BDO, Security Bank..etc..)
  • Other Payment centers: bayad centers, pawn shops and the like payment channels (This may vary from different insurance companies)


Mode of payment is quarterly, vice versa? can I change to annual?
Yes, you may change mode of payment anytime as long as it’s advanced. That way, you won’t be lagging in your payment schedule. However, say your initial mode is quarterly and you paid in Annual, you will still receive the quarterly billing since it’s computer generated. In case you don’t want to receive the quarterly billing, we need to change that in paper, there’s a form we need to submit. Or you may simply ignore the quarterly billing.

Can I pay on a Monthly basis? I started annual but I want to change to monthly. What to do?
You can pay monthly as long as it is advanced. Ideally, to do monthly payments, initial payment is either quarterly, semi annual or annual. So you pay the first 3 months, then you immediately pay the monthly the next month. That way, when the next billing comes, you already completed the 3 months in advanced. Same goes with Semi Annual and annual. It has to be advanced.

Can I pay in Advance? I want my VUL policy to be paid in just 5 years.
Yes you can. For example, your plan is Php15k a year for 10 years. Instead of paying 15k a year, you may do Php30k a year for 5 years.  As long as you fulfill the total payment in 10 years or less.

Can I pay my VUL using a credit card?
Personally, this is not advisable. And if an insurance company offers such an option, run away! Credit should not be used for investments. But for traditional plans, credit card payments are allowed as they are not as expensive anyway.

I haven’t paid for a year. Can I still make deposits to my policy? Can I still make up for skipped payments?
VUL plans doesn’t automatically lapse or terminate. If you haven’t received any notification that your policy lapsed, most likely, it is not. If it’s not yet lapsed, yes, you may continue your deposits. You can also make up for skipped payments. But it is better to call or visit the insurance company just to be sure and see the whole picture.

How do I pay using online banking?
This is for online banking with BPI.
Enroll
– Login to your bpiexpressonline.com account
on the Menu, go to Payments and Reloading -> Bills Payment -> Enroll All Other Bills
– Company Name is Sun Life of Canada (SUNLIF)
– Reference Number is your Policy Number
– Click Submit
Make Payments
– go to Payments and Reloading -> Bills Payment -> Pay Bills Today (choose from Drop Down – SLF…)
– Enter Amount, Then submit

If I'm an OFW or working overseas, am I still covered?
Yes :)

I'm an OFW or working overseas, can I still get a VUL?
OFWs can still buy your own VUL as long as you sign it here in the Philippines. If you are planning to buy VUL for your spouse and kids, and you are the applicant and they are the insured, you still need to be here in Philippines for the processing.

What other questions do you have? Do let me know!

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