Is a VUL Insurance Really Worth It?

Variable Universal Life Insurance products are popular in the Philippines, but what are some caveats that we should consider before buying one?

Disclaimer: This post aims to educate and not to give financial advice. Investments have different risks, and it is up to the investor to do due diligence and make decisions regarding his money.

Last year a kumare offered me a VUL (variable universal life) insurance to invest in. She had hooked me with the term “insuravest” — buying insurance with a tandem investment tied to it. I was thinking of investing long-term in my son’s college education. He was only 3 years old then, a very good time to start in my opinion.

To explain quickly what a VUL is, it’s life insurance, but with a mutual fund component. So while investing in the mutual fund, you also get to have the benefits of life insurance. You can typically choose what type of mutual fund you can invest in, with different risk appetites.

We were able to complete the transaction, and I opted to pay for premiums every month. Now, a year into the decision, I thought of looking more into the details of the product and revisiting it. I saw some questionable things and now I’m slightly regretting my decision. Here is why:

Realization No. 1 – Projected Benefits are not Actual Benefits

I first checked the policy, they have a table there that shows projected benefits, usually split into three sections (Low, Current, High) and these come with arbitrary percentages like 4% for low, 0% for current, and 10% for high.

A year into buying this VUL, I realized that not all of their fund performances across the board were profitable at all (some averaging at less than 1%). The fund I chose, which is equities, was in the negative.

If I compare this with the gains of PAG-IBIG MP2, in 2023 the dividend rate reached 7.03%. This is a far cry from the “Low” projections in the policy.

Realization No. 2 – Fund managers always take a cut

Another fine print I missed when I bought this VUL is the mutual fund managers have an “annual management fee”. For this particular VUL the fee ranges from 1.5% to 2.5% depending on the fund you selected to invest in.

This means that for any funds you select, you should also take into account the fees to be profitable. In my case, this year my fund lost instead of gained, and actually, I lost more because they also got a percentage from it.

Realization No. 3 – Topping up your investment has a fee

For investments, usually, you would want to top-up or add to your investment when you have a windfall. But for this particular VUL, top-ups have a 3% charge on the amount you are adding. I feel this is a bit of a disincentive especially if you want to maximize your investment.

Realization No. 4 – Your agent may be incentivized by the high commissions of VULs

One big reason why a lot of insurance agents push for VULs is because the commissions are high compared to ordinary life insurance products. But a big caveat though is they don’t know the fine print of the products they are pushing. Sometimes they do know, but they are deceitful about it.

Realization No. 5 – Insurance companies may not be the best investment vehicles

Insurance companies are good at providing insurance. However, they may not be the best fund managers. Also typically the funds they provide are feeder funds, where they invest some or all of it into other mutual funds not owned by them.

Sometimes it may be better to invest directly in those feeder funds yourself.

The Bottom Line

Personally, I will still be continuing with the VUL as I’ve already started it and I can switch the fund allocations to the best-performing one. You can check the fund performance as they regularly update it on their respective sites.

If you are planning to get a VUL, better read the fine print and do your research. I see that maybe this product is really for you if you are someone who does not know how to invest on your own and you want insurance to come with it.

Some VULs have lower management fees, like Singlife’s Cash for Goals under GInsure. The management fee they take is 0.1% per month (so around 1.2% per year). You can also check other insurance company offerings.

But for me moving forward, I would rather buy insurance as a separate product. Term insurance is pretty affordable and you can renew it yearly. The savings I get from it, I can invest separately. Some investments I can put my money in are in PAG-IBIG MP2 or SSS WISP Plus, and it’s easy to top-up both from within GCash.

---