So I've Got A VUL, What Now?

So I've Got A VUL, What Now?  Once you get one, VUL, typically charge very high fees or penalties before you can "get out". That's why I am personally biased against VULs. But if you already have one, the best option is to stick with it.  The choices are a little limited, but at least you're already insured and have an investment.
One of the most read posts of this blog is the one about my personal opinion why people should not get a VUL.

Which feels really great. I wrote that specifically to make a dent against the constant barrage of VUL salestalk. There's practically an army out there pushing VULs. Which is not bad, people need insurance and investments. It's just that most of the time, in my opinion, it's recommended and sold not because of the client's best interest but because it gives higher commissions than the other insurance products.

The relatively minor downside, is that I might be alarming or maybe even panicking some people who already bought a VUL. I've already gotten several comments, emails, and facebook messages regarding it.

So in this post, I'd like to share what you can do it you already have a VUL.

Which is pretty easy: keep your VUL.

I am personally biased against VULs. But if you already have one, the best option is to stick with it.

Once you get one, VUL, typically charge very high fees or penalties before you can "get out".

One commenter in this blog specifically mentioned that of the 100k paid, only 10k could be redeemed if the policy was terminated (it was, I think, still in the first year of the policy). Another reader informed me by email that of the 120k paid, ~90k went to agent commissions and admin fees, while only ~30k went to investments (again, this was on the first year). Maybe it had a really high face amount (insurance).

So really once you get one, it's almost never a good idea to get out. It's sometimes termed as forced savings, and indeed in a way it is. Though when the money goes to something else other than insurance or your bank account, it's understandable if you feel it's a bit of a money trap.

Still you're not entirely helpless, and you've got a few choices.

You can increase what you pay, because in most VULs the "extra" goes to the investment. Hopefully the fund will grow quickly and will be able to pay off the insurance earlier. The idea here is that you'll "end" the commitment sooner and be able to focus tour money on other things. But then again, "sooner" is a relative term and unless the additional money is very significant, the time saved may not make much difference.

You could also just keep paying as is. If you still have extra money, you can use that extra to invest in something else. Or if not, maybe you could focus instead on creating another income stream or enlarging your current one.

Another option, though most likely not as probable, is to limit what you pay to the bare minimum. In most cases though, the bare minimum is essentially the agreed upon premium. If it's possible to pay less, however (without costly penalties), you could then divert the money "saved" into other investments.

The choices are a little limited, but at least you're already insured and have an investment. Personally, I'd rather take a different route. But in the end, what matters most is to be insured and invest for your future.



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44 comments:

  1. I have read many posts saying no to VUL.

    Though I understand the point, I am still planning to get one from Philam, the one that covers critical illness.

    At first I was hesitant because of the high premium. I can instead use this amount in my stock or mutual investment.

    However I realize, what if I am diagnose with critical illness when the market is down or when I am still in the payment time; and I am covered until old age. This may not be a lot at after 20 years, but still it is better than nothing.

    ReplyDelete
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    1. Get health insurance. You don't need VUL. Match your needs with the correct financial product. Critical illness - health insurance not the critical illness rider of VULs.

      Delete
    2. Which particular heath insurance would you recommend? what is the advantage of getting a critical illness protection from a health insurance over a VUL?

      Delete
  2. hi. been reading your previous post about VULs. Well, I'm 22 now, got my VUL when I was 21. been paying for a year and 3mos now (36k annual premium).
    Since I read your article, I am thinking of terminating my VUL, get a term life insurance and invest the difference in mutual funds. but, since I am thinking that it is indeed a waste of money if I terminate my VUL, I continued to pay.
    Last Saturday, I attended a financial literacy seminar and I met a lot of colleagues who terminated their VULs and change to BTID. So, right now, I really want to terminate my VUL but the cash surrender value is only at 15k. Also, I'm planning to use my VUL after 5 years or so, to buy a car or a house.

    Anyway, I'm so confused right now. Should I continue or terminate and switch to BTID approach?

    ReplyDelete
    Replies
    1. Hi Anonymous,

      I'm assuming you can afford to pay it; in which case my advance is to probably stick with it.

      If you terminate your VUL, you are most likely subject to steep exit or early-termination fees. And, as you observed, will only get a fraction of the amount you have paid so far.

      The only "safe" exits are to either pay more, pay as is, or pay the "minimum". By paying more, you are hoping that the investment part will sooner be able to pay off the insurance component. Paying as is, is simply continuing the course and making what investments you can in the time being.

      Paying the minimum is usually the same as paying as is, though it's worth checking just how little you really can pay without forgoing the insurance. The idea here is to free up as much for your current cashflow as possible so you can do other things with it.

      Of course, it also depends on your capacity to stomach the loss. If you pay annually, maybe you've only paid 36k so far. a 15k money back means you would lose 21k. More if you actually pay monthly or quarterly.

      That's ~58% loss. Pretty steep.

      If you're going to accept that loss, you better be switching to an investment that can outperform your VUL to such a degree that over the next few years it would give enough returns to cover that loss and outperform the VUL by at least a token amount.

      That's prety hard to do unless the VUL is a real laggard.

      Delete
    2. Thank you for such immediate response Sir Carlos.
      Well, for the past year, i am finding my annual premium quite expensive na, but can still pay naman(just need to sacrifice a bit of luxe).
      Also, what bothers me is the admin charges which are more than half of my premium.

      So far, I've already paid 45K, so the 15K csv is just a third and, indeed, very steep.

      I'm currently reviewing my policy and seems like after 5 years, if ever I plan to terminate, the loss won't be that much naman. And if I will switch to BTID, my investment will still be in mutual funds, so I think, my VUL and MF will almost have the same returns. The advantage I see in BTID is that the premium will be at 3k a year, which means that I will be able to invest a lot for mutual funds or stocks.

      Delete
    3. Personally I prefer BTID myself.

      But that's a tough spot. If the premiums are interfering with other commitments, you can "cut loss" and go BTID.

      But otherwise, it might be more prudent to wait things out. You can try computing how much you lose now if you go BTID, and how much the loss will be in 5 years.

      And then try to quantify the benefits of going BTID now rather than in 5 years.

      If it's enough to justify the 30k (currently) loss, then see if you can bring yourself to let go of the VUL (and the 30k).

      Delete
    4. Got a VUL. I'm on the 6th year. 100k/yr premium. I now opt to stop paying the premium and instead direct the money somewhere else. Ask your agent to recompute the table he/she showed you before. It will show you your "probable" gains if ever stopping at one point can still give you favourable returns. Because i think it is default that computation table shows 10-year premium paying.

      Delete
  3. Thanks Sir. Might list down the pros and cons and will meet my financial adviser to see all possible options.

    Thoughts about IMG Sir?

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    Replies
    1. I like IMG. di nga lang ako member, pero iniisip ko dn na mag join. Yung isang relative ko member.

      Delete
  4. I have had my VUL with PruLife UK for the past 6 years. I have been paying a monthly premium of P5,584 a month or P67,008 p.a. I am currently making a paper profit, but I still find it very small. It comes out to be only around .75%- 1% p.a. My VUL is invested in equities. First question, do you think I should withdraw an move on to another investment? Second, should I stick it our because for the first few years, a huge portion would be paid on commissions, admin fees, the insurance, etc... Not that I have been invested in the VUL for already more than 5 years, I am assuming that a huge part of my monthly premium already goes to the investment side. Am I correct to assume this? should I continue with this investment?

    ReplyDelete
    Replies
    1. Hi Anonymous,

      That's a whole lot of questions. First, we need to tackle some "background info"

      - the stock market is currently on a correction, so not a whole lot of people have "green" portfolios right now. That said, someone who invested 5-6 years ago should still have a healthy profit.

      If you know what you're doing, you can invest in different stocks and equity funds to take advantage of the "sale" in the stock market. But if you are looking for higher profits, you may have to wait until the market turns bullish again.

      Next, let's move on to your VUL: don't assume, ask. That's what your agent is getting commissions for. Inquire about the break down of the premium, how much goes the investment, admin, etc.

      Then, ask about termination or exit fees/charges. Or read the policy, if that conversation would be a bit awkward. But always confirm the info before acting, in case they changed it recently.

      And can you really exit without terminating the insurance? Better if yes, so you won't have to be insured again. Bu as long as you come out ahead money-wise, it's ok to switch.

      Switching or sticking is really up to you, and I definitely wouldn't know better than you. You're just going to have to compute carefully and thoroughly and take everything into account.



      Delete
    2. To Mr. Anonymous,

      I wonder if your agent discussed thoroughly about your VUL and how you understand it. Ask your agent regarding your investment. You have your options and your agent will probably help you.

      Delete
  5. Hello! Can you give me an idea about Sunlife Flexilink? I got this insurance this month of July 2015. I paid my premium for one year on the amount of Php 21,607.50. It has hospital, death and accidental, critical illnes benefits Is it wise I chose this kind of insurance? Thanks in advace for the reply!

    ReplyDelete
    Replies
    1. Hi Anonymous,

      If it achieves your goal then yes, it's ok. Normally you could revisit every now and then and "re-calibrate" if it's still the most efficient way. But with a VUL it's practically permanent, unless you're willing to take losses.

      So in this case, if it satisfies your goal(s), be at peace and turn you attention to your other goals.

      Delete
  6. Hi,

    I recently got a VUL in Sunlife (sun maxilink prime) but my agent told me that I would be needing to get a traditional insurance to be able to avail it. Is this really true? I mean I just wanted the VUL and not the traditional one but since she said it is required I did took one alongside the VUL.

    ReplyDelete
    Replies
    1. Hi Anonymous,

      As far as I know when you want a VUL, you can get a VUL. It's already an insurance product, so there shouldn't be a need to get a traditional insurance before you can get it.

      Maybe it was just a misunderstanding? The Agent may have meant VUL to mwan the investment aspect, and tried to covey that you also get "traditional "insurance" (the insurance aspect) with it as some form of 2-in-1 deal.

      Delete
  7. Hi,

    I recently got a VUL from AXA Philippines (Life Basix), my quarterly fee is 17,000 which is 68,000 annually. 60% (10,200php) of my quarter fee goes to investment and 40% (6800php) goes to the insurance which is just Life Insurance amounting to 2M. Plus there is around 300 php monthly charges for admin fees etc. You think this is a good deal or not? I should have read your article before I signed :( But, could you advise me anything? Should I continue it?

    ReplyDelete
    Replies
    1. Hi Tanya,

      It seems less onerous than other VULs I've read about.

      But your other question is easier; yeah, you should probably continue it. You can confirm with your agent or read your policy, but it is usually very expensive to get out of a VUL.

      Delete
  8. Hi,
    I’ve been researching a lot regarding VUL since I am a newbie. I have an officemate who is offering me that investment-insurance. I am thinking if I can invest there and after 5-years I will be terminating my policy since I am planning to put up my own business in the near future. Or will be resigning from my work 10 years from now. Is it a right choice to put a part of my salary in VUL?

    Thanks a lot in advance.

    ReplyDelete
  9. If you plan to stay only for 5 years, it's a really bad idea to get a VUL. even for 10 years, it might not be a good idea.

    If you haven't read the comments yet, a big chunk (sometimes most) of your money will be going to commissions and admin fees when starting with the VUL.

    ReplyDelete
    Replies
    1. Thanks a lot for your advice. But is it the same with the equity and growth fund that the Philam Life or Insular Life is offering?

      Delete
    2. Hi Anonymous,

      Yes. Let me explain in more detail. For example you want to start a business. You determine that you'll need 100k as capital. you only have 50k. You can add over the years, but that will take so long. So you decide to invest in an equity and get to 100k quicker.

      So let's say the equity market returns ~10% per year. That's the common quote of VUL sales people. Let's assume that's also roughly the returns of mutual funds and UITFs.

      With a UITF, they'll take 1.5-2% per year off your profits as their payment. So let's assume that your 10% is now down to 8% per year. So that's 50k growing at 8% per year; over 5 years, let's assume.

      With mutual funds, it's roughly the same. Though some mutual funds will have "front-load" fee (usually called a sales charge) of 3-5%; Let's assume it's a relatively cheap 3%. Plus they also have annual fees (again 1.5-2%). But they do boast of being able to get better returns than most. So now that's 48,500 (50k - 3%) growing at ~9% over 5 years.

      With a VUL, guess what? You'll be paying commissions, admin fees, whatever. It can be as high as 90% of the premium you pay on the first year, though it decreases each year. It's also doubtful if they perform consistently better than MFs. Also: at best, part of your money goes to paying the insurance charge, even though you "invested" with the goal of using it for business.

      Of course, they'll tell you that you need insurance anyway.

      So now, you're 50k is decimated, and for the next 5 years, you're really just trying to play catch-up: first to get back to 50k, and then to somehow get to your goal despite taking a rather scenic route.

      That's why I say it's a bad idea to "invest" in a VUL, whether for seed money or as a nest egg. You can of course get insurance as you see fit, but term is usually the better and cheaper choice.

      Delete
  10. Great! Thanks. I was planning of getting a VUL already. Good thing i was able to read this.

    ReplyDelete
  11. Interesting read. Let's forego that on the fist years of a VUL, bulk of it goes to commission etc and look just at the insurance charge, is it considerably higher compared to traditional life insurances? Second, I think most people invest in insurance with investment as a means to avoid estate tax and inheritance tax but honestly i'm not entirely sure how it works. Would you have any information on this?

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    1. Avoiding estate tax thru insurance:

      get old, or anticipate your death. Buy the largest single-pay VUL you can. If you want to maximize the strategy: sell assets your heirs wont really keep (extra houses, cars, appliances, lots, etc.). Use all the money to buy the huge insurance.

      Since you are near-death, or really old, key here is to get the largest face amount you can. Why? the investment part might not grow fast enough to "multiply" your money before you pass away. The market might even be bad so as to lessen the inheritance of your heirs.

      the face amount though... that's typically larger than what you paid them. ~11k VUL supposedly returns 300k when you die. Obviouly it wil lreturn less as you are old. But even if it returns just 5x (11k becomes 55k rather than 300k) your 1M (after selling all assets) becomes 5M.

      And since insurance is tax free, and given quickly after death, your heirs are pretty well taken care of.

      Works best if you are about to kick the can. Because doing it early means less assets you can sell (cause you still need them to have a decent life).

      However, I have no idea if or how insurance companies will screen out this strategy.

      Delete
  12. Hi! I just randomly saw this chain conversation of yours. I am employed, 23yrs old and very conscious on where to invest my money to grow it faster. I don't have a lot of time at the moment, so establishing my dream business is not an option just yet. So there, I started "searching" and form a referral, I found sunlife canada and prulife uk, both offering VUL. I am so pleased on how they talk and all, but in the end, I felt something must still be wrong. I should not exactly be "pleased". They are "too accomodating".. so I guess that's their comissions, fees and everything. Now here's my question. I'vw read terms such as BTID and UITF, can you kindly elaborate them further? Also, can you give me a good tip on where should I really invest my savings? Aside from this blog, do you conduct special classes of sorths or let's say informal meeting for this? Haha. Thank you very much. You have opened a new perspective for me to think about.

    ReplyDelete
  13. Hi Amihan,

    BTID is "Buy Term, invest the difference" which mean: just buy term insurance rather than the more expensive VUL and just invest the money saved in a bank UITF or Mutual Fund.

    UITF is "unit investment trust fund" which is a form of investment offered by banks.

    You can browse my blog for detailed explanations of these and other terms.

    Unfortunately I don't conduct special classes. But there are classes available form time to time by Fitz Villafuerte. OFW Usapang Piso (a facebook group) also conducts classes from time to time.

    ReplyDelete
  14. Hello there, still planning to get a VUL here but i already have insurance at work. As long as im working with the company I get insured. Would you recommend me buying a VUL with life insurance and investment? Is it worth it to have double life insurance worth it? Im still about to talk to my agent regarding the proposed policy for my VUL. Appreciate the comments, I got ideas what good questions to ask my agent. Thankd!

    ReplyDelete
  15. Hello there, still planning to get a VUL here but i already have insurance at work. As long as im working with the company I get insured. Would you recommend me buying a VUL with life insurance and investment? Is it worth it to have double life insurance worth it? Im still about to talk to my agent regarding the proposed policy for my VUL. Appreciate the comments, I got ideas what good questions to ask my agent. Thankd!

    ReplyDelete
    Replies
    1. Hi,

      Well, I'm not afraid to say I'm partly biased against VULs. I think you'd be better off with term.

      But more to your questions:
      I would not recommend it. But if you really studied your options and found that VUL meets your needs, then sure why not.

      Is it worth having double life insurance? Well, it depends on you. For contractual workers, or those with less employment security than most philippine employees: yes it's definitely worth it. If you lose your job, you have no insurance and there's always a chance something comes up while you are in between jobs.

      I'd recommend a termm insurance because it's cheap. Which means you could have paid it for the year easily and saved the rest for emergencies. That means a bigger nest egg if being suddenly in-between jobs is not a remote possibility.

      But you could also go with VUL if you want.

      Delete
  16. Hello would you recommend having two life insurance. Like one from work and one on my own through vul? Im confuse if i should get VUL or just pure mutual funds...

    ReplyDelete
    Replies
    1. If you already have insurance at work, I'd go with term + MF/UITF instead.

      Delete
  17. Hi. I'm planning to get a VUL from Sunlife amounting to 300,000 for 10 years which is 30,000 per annum. This includes 1M death benefit, additional 500,000 if it cause by an accident and another 500,000 if permanently disabled. Only 20% of the principal amount will go to insurance meaning the other 80% will go to investments. Is it a good deal? btw I'm more concerned on the investment part. I wanted to try other options but i think this 2-1 package is a good deal. I don't have time to personally invest directly my money on equity markets.

    ReplyDelete
    Replies
    1. Hi Unknown,

      No, I'd strongly recommend against a VUL. Hopefully you've read my 2 posts on VUL.

      Feel free to go with VUL anyway. If it fits you then its ok.

      Delete
  18. Should have read this sooner. I'm already into two years of this VUL infact I got two, one is on Equity while the other is invested in Balanced Fund from different companies. I got into taking both coz one is for my family incase sh*t happens to me and also I was a newbie in investing that time hence got this for safety reasons. Now I've learned so much, I'd like to retract it but looks like I'm stuck. For me personally, it's better to keep money by hand even if it shrinks by deflation. I project in 5 years time if 8% is the returns per annum, I'd get my money back but just break even.

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  19. Any comment about generali philippines.already have vul but planning to terminate. Is it good idea or not?

    ReplyDelete
  20. Hi. I'm planning to get a Health Invest Plus( Health and life insurance)from Philam life amounting to 63,886.99 annually for 5 years. Allocation of my Investment fund will be (20%) for PAMI Philam Bond Fund and 80% for PAMI Philam Strategic Growth Fund. Is it a good deal?

    ReplyDelete
  21. Hi, I ask my agent while I'm paying my VUL and I die, what my beneficiary will get? She answered, the face amount plus the fund value. And asked her again what if I don't die and finished paying my VUL for 10years,what will I get? She said, only the fund value I can get. I thought VUL is insurance plan and investment. Please help me understand this. Thank you in advance.

    ReplyDelete
  22. Hi, I planning to buy VUL from Sun life but I can't decide between Maxilink Prime and Flexilink. Is there anyone who can explain to me the difference?

    ReplyDelete
  23. Just signed a VUL,proposal and already paid the initial deposit of 21k. 84k annual premium. Waiting for approval of the life insurance.. after reading this thread, i want to cancel it now.. is that possible? I just want to invest in MFs.. please advise. Thank you!

    ReplyDelete
    Replies
    1. Hi,

      Thanks for reaching out on facebook aslo, sometimes it takes a while for me to reply.

      Nice to know you have a 15-day grace period. Hopefully you can still get most if not all of the initial deposit.

      Delete
  24. Hi, it's been 3 years since I've got my VUL from Sunlife. Is Sunlife a good insurance provider?

    Since I came back home from abroad, I do not have any insurance so I decided to get one.

    Did I made a right decision when it comes to the provider?

    Thanks and have a nice day!

    ReplyDelete