EXPLAINER: Don’t let anyone sell you VUL as an investment

It works if you need insurance and want investment features bundled in.

You sit across from an insurance agent and hear an irresistible proposition: protect your family while growing your money at the same time.

That is the appeal of Variable Universal Life or VUL insurance. There is nothing inherently wrong with the product. The problem begins when it is sold primarily as an investment.

A VUL is fundamentally life insurance with an investment component. And consumers expecting it to behave like a conventional investment can be in for an expensive surprise.

Your entire premium is not invested

Put ₱10,000 into a conventional investment and, aside from applicable fees, most of that money is intended to start working for you.

VUL is different.

Your premium also pays for insurance protection and policy expenses. Depending on the product, premium, administrative, insurance and fund-management charges may apply. Only the allocated amount purchases units in investment funds.

That’s why your fund value can be considerably lower than the total premiums you’ve paid. You weren’t investing every peso in the first place.

Your fund also pays for insurance

The accumulated fund isn’t simply waiting for retirement.

Insurance and other applicable charges can be deducted from it to keep your coverage running. The money therefore has two jobs: accumulating value and helping finance your life insurance.

A standalone investment doesn’t have that burden.

‘10 years to pay’ can be misunderstood

Some VUL products have limited premium-paying periods, such as five or 10 years. But finishing scheduled payments does not necessarily guarantee you’ll never need to put money into the policy again.

Investment returns are not guaranteed. If poor performance leaves the fund insufficient to cover continuing charges, additional premiums may eventually be required. If the fund becomes depleted, the policy can lapse subject to its terms.

So “10 years to pay” should not automatically be understood as “pay for 10 years and forget about it forever.”

Projections are not promises

Those impressive future fund values shown in sales illustrations are projections.

VUL funds are exposed to market risk. Values can rise or fall depending on their underlying investments. A projected amount at age 60 or 65 is therefore not guaranteed money waiting for you.

Consumers should ask to see the assumptions behind those numbers—and what happens under less optimistic scenarios.

VUL isn’t necessarily bad, misselling it is

VUL can make sense for someone who needs life insurance, understands the charges and risks, and deliberately wants insurance and investment features packaged together.

But it should be explained first as insurance, not marketed like an investment account with free insurance attached.

If wealth-building is your main objective, compare VUL with buying appropriate insurance separately and investing separately. Examine actual charges, liquidity, risks and expected returns before deciding.

And before signing, ask one simple question:

If the insurance benefit disappeared, would you still choose this fund—with these fees and restrictions—as the best place for your investment money?

If the answer is no, don’t let anyone sell it to you as an investment.

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