I have provided in my previous post some explanations about frequently asked questions about the Variable Universal Life Insurance or VUL (see What is a Variable Universal Life Insurance (VUL) – Part 1). VUL is one of the fastest-selling life insurance products in the country because of its affordability and flexibility features. Some Filipinos are now looking for alternative investment vehicles where they could grow there money. A VUL policy’s investment feature could be a good alternative. But like any investment, one should exercise due diligence before parting with their hard-earned money.
Below are more frequently asked questions about the general VUL product features.
How do I earn from my VUL policy?
As mentioned on my previous post, premium payments made by policyholders are used to buy units from their chosen investment fund. The unit prices of these different funds change daily depending on fund performance. Unit prices appreciate over time. Policyholders earn through appreciation of unit prices. Example, a policyholder bought his units at initial price of P1.00/unit. Ten years after, unit price grew to P5.50/unit. The difference between the two prices would be the policyholders potential earnings.
Is income guaranteed in VUL?
Since valuation of the policy’s fund is based on actual fund performance which fluctuates on a daily basis, policy income is not guaranteed. The volatility of the fund performance presents an opportunity for higher returns compared to traditional life insurance products which earns through fixed dividends. However, there is also a risk that the client may lose fund value on a particular year. It is wise for a potential buyer to understand that with the opportunity to earn more in VUL, there some risks that they also need to understand. Each investment fund has a certain degree of risk. The fund’s return is proportionate to the level of risk of the investment. the general rule is that the lower the risk, the lower the return; the higher the risk, the higher the return.
You mentioned about different investment funds. What funds can I choose from?
Generally, there are three types of investment funds: the Bond Fund, Equity Fund and the Balanced Fund.
The Bond Fund is designed to invest only in high quality fixed income instruments that are classified as below average risk.
The Equity Fund is designed mainly to generate long-term capital appreciation through investment in high quality equities diversified across sectors.
The Balanced Fund is designed to provide total returns consisting of current income and capital growth through investment in a diversified portfolio of debt (bonds) and equity (stocks) securities from both domestic and foreign issuers.
There are some variations also to some of these investment funds. For example, Sun Life of Canada, Phils., Inc’s VUL products have the Growth Plus fund – it is a type of equity fund that are invested on the top dividend-paying listed-companies in the Philippine Stock Exchange.
What is the best fund for me?
In choosing the best fund to invest in, one should consider the following factors: risk appetite (how much percentage of loss can you accept), your investment objective (capital appreciation or preservation), and investment horizon (when do I need this fund? 3, 5, 10, or 20 years?).