VUL Phobia. Is it Really That Bad?

There are still many people who are not into investing yet they have huge amounts of money stuck in their savings accounts. They are capable yet one of the biggest reasons why most of them don't is their scepticism of the investment processes and having very little trust to financial advisors/agents. Unfortunately for some financial advocates, they think they are helping these people to decide better by telling them to stay away from an investment product by merely giving this subjective reason of "greed" of some agents.

Sure, there are really those sales people who are more concerned after the cuts and commissions from their client's moolah than into helping them. But we cannot generalize advisors/agents based on the product they sell. And it does not follow that if one is pushing for a product that you don't agree with, then he's just after the client's money. Every financial case is different and so with each of the solution and it could be something different from what you think is applicable with your case. It is just sad that even some of those seasoned "gurus" give this type of advise simply because they don't like one product nor it does not suit their ways which in turn scares away inexperienced potential investors from more possible options they can choose from.

One of the usual victims of such "hate" is the VUL or Variable Universal Life. For those who doesn't have an idea yet of what VUL is, it is basically a type of product that combines a whole life insurance and an investment facility into one. "VUL is too expensive", they say. "It's for the lazy people", they say. "It's for the agent's commissions only", they say. I will tell you right away that there's a bit of truth about these things, BUT... these TRUTHS could actually work in your favor as an investor.


1. First, by saying it's "too expensive", what is it that makes other people say that it is? You can only say that one thing is expensive if you have a comparison. Upon reading observations of some finance advisors who believe that VUL is expensive, they are wrongly comparing it like apples to oranges with other pure investment type of products. And if they understand what they are doing, then that's dishonesty. But there are some who makes a better case in comparing VUL from investing in Mutual Funds/UITF plus getting a term insurance policy separately and proving that the latter is cheaper. There might be cases like that. Though basic economics knowledge will tell you that maintenance charges of a single product compared to two will always be cheaper. And that's the case with VUL versus UITF/MF + Term Insurance nowadays. There was a period that it was not. However due to continuous researches of financial companies and the high level of competitions, companies offering VUL improved a lot on this part. That would be more true if you compare offering of each product within the same company who provides them. Don't just take my words for it. You can have an advisor/agent make a quote for you on each of these products they offer and let them compare the charges and the projected amount you can earn in a certain period considering all factors (age, face amount, length of years to invest, fund options, etc) are equal.

2. Some will disagree on the whole life insurance part of VUL and will tell others that it's always better to buy a term insurance. Let's take a specific scenario. If you are young,buying a 10 yr term life insurance and would be cheaper than the charges you will pay in 10 years for a whole life insurance combined with a VUL. But after 10 yrs, if you want to renew your insurance, you have to undergo with another approval and application process. There's a big possibility that your health condition will change at that time and there's a bigger risk that you will not be approved because of it. And even if you get approved for a renewal, then guess what, your charges will be higher than what you paid for your first term. Unlike when you have it integrated with a VUL, you will undergo with just a one time approval process for an insurance coverage that you will have for your entire life until maturity and charges get even lower as you age. The fact is, there are even many VUL products now where its insurance charges are cheaper compared to what you would pay for with a separate term insurance policy.  There was a time that VUL charges were higher than getting a separate insurance policy + MF/UITF (or what they call BTID meaning Buy Term, Invest the Difference) but it was so long ago and it did not last that way since people nowadays are smarter in choosing the right investment product for them. But it seems some people were not able to move on from that period and are stuck with the idea of what the VUL looked like on its initial offering which in turn blinded their opinion about it.

3. And there will be those who will argue on why would you sell a VUL when the client only wants a pure investment. That's another case. One would ask why would you offer someone who has an insurance already to buy another one? You will not unless he needs it as he thinks that his first one's coverage isn't enough. And also, if one doesn't have an insurance yet and he wants to start an investment, a good financial advisor would encourage that person to buy an insurance first for reasons that all advisors and seasoned investors must already know. And offering him a VUL to have it both at once can be a good option. 

4.  Is laziness a reason for buying VUL? Yes and No. Yes since you read the reasons above on why it's better to choose getting a VUL than having to deal with twice the process for separate insurance and investment. That's one good reason to be lazy. But it can also be that you are NOT lazy but a hard working person that doesn't have much time in your hands and that you could benefit more in getting a 2 in 1 product. But of course, you have to consider your needs first before starting with anything.

5. Are agents selling you VUL solely because of the commissions they will get? It is possible. And it is NOT limited to VUL agents. There will always be sales people who will try to manipulate others to buy the things they don't need. Therefore, you must not use this reason on not getting a VUL since it is not the product's fault that we have those unethical sales people. You must decide what investment product you need based on your knowledge of your own situation, not on what other people think about you or to the others. Besides, do you really think those who are selling term insurances, UITFs or MFs are doing it for free?

6. You can maximize benefits of VUL only if you die early.  True. Very true. As investors, we all know that every type of investment is a risk. We understand that time is our friend which helps us minimize the risk. But do we always have time on our side. Maybe. Maybe not. And what if you are a young parent with small kids or a young professional who is the breadwinner of your family? What if you only have invested for a year and let's say it has Php 100,000.00 cash value in it, and then something happens and you die? I hope that this could even cover the whole funeral service fee. Then after that, who will bring the food on the plates of your loved ones you leave behind? Every investment is a gamble. So is life. And I don't think it's bad enough to gamble by at least starting with Php 3000 per month and pay it out after 1 quarter for a VUL and be able to protect yourself with a Php 1,000,000.00 insurance value right away just in case the inevitable happens. But then, if you live long enough, you just have to make sure that you choose the best fund option so you can enjoy the fruits of this "gamble" during your old age.

You must also keep in mind that an investment product (MF, UITF, VUL, etc) which are offered by each company although similar are to be treated as different animals by themselves. There are different paying terms, charges, funds options, fund managements, etc.  Therefore, there will always be the worst among them in terms of charges, management, processes, etc. But in any case, the worst in its field will not defeat the purpose of what a specific investment product would provide to a client's needs. The best way is choosing the product that suits your need, then finding the company that gives the best offering for that kind of investment. So for those who are just beginning to research about the best type of investment to start from, please, do yourselves a favor. Hold on to your emotions and let it not be swayed by a strong opinion against persons. Give yourselves the chance to look at all the options logically before finally deciding what's best for you. And let me be the one to tell you that VUL will NOT be always the best choice for you, but then, you will not know which one is unless you unbiasedly read, listen or ask.

Start Your Investment (But How, Where, When, Why?)

Handling your investments includes the technical and non-technical aspects. And it also involves a lot of common sense. We usually leave this part while thinking that the how-to-dos are enough to manage your investments properly. But are we really doing it right?

People invest on many things such as cars and houses. By working hard and smart, they save enough money for the down payment and then have their jobs and savings keep up with the amortization. But we are all aware that bad things happen on the most unexpected time. Accident may happen to your car the moment you drive it out from the casa. And your house can be burned down to ashes on the first day you moved in. So to protect your investment, the first thing you do when you purchase a house or a car, you get insurance for them. So even if the worst thing happens the moment you get a hold of the keys of your car or your house, possible expenses will be covered by insurance. It is even now a requirement to get one before you can get a house or a car loan. That’s how valuable insurance is for your assets.

Can happen even if it isn't your fault.

Now imagine this. You decide not to get insurance right away. You choose to save money first in the bank or in other money investments like mutual funds, stocks, bonds, time deposits, etc.  After several months of saving, you were able to keep aside a bit of money. Let’s say a hundred thousand pesos.

And then the misfortune happens. You got into an accident. Either you got injured, get disabled or worse, you die.  Whichever of that happens, your family will surely need money for that.  Here are two scenarios that could happen to you after that unfortunate event:

Scenario 1: You get injured and need some time to recover

You will need money for your hospital bills. While you’re confined and resting to recover, your income will stop because obviously you can’t work. That Php 100,000 you saved will be needed. Then you hope that it’s enough to cover the hospital bills  and aside from that, including everything else that you were paying for from your monthly salary (bills for electricity, water, cable and phone, monthly rent or loan amortizations, food, etc). Good for you if you have a health card but still, it can’t cover everything. Unless you have reimbursement benefits from your company, you will also need to shoulder amounts for your medicines. And remember that you only have Php 100,000 for all of these while not having work for unknown period of time.

Scenario 2: You die from the accident

Worse is you may die from it and that Php 100,000 is the only money you have. Funeral services now are exorbitant. Let’s say Php 40,000 will be set aside for it. And your family will be left with Php 60,000. That amount for the rest of their life? Maybe you left some other assets like your home, car and others which I hope you had already paid in full or got Mortgage Redemption Insurance for them. And these might be subjected to estate taxes before being transferred to your loved ones. It could be worse if you’re the solo income earner in your family.

Start saving somewhere

But again, the good thing here is it’s not yet happening. You still have time to prepare for these possible scenarios. There are many ways to prepare for it.  And each scenario has its own solutions.

For Scenario 1, you will need to study all your expenses right now. Check out each of them and see which among them you can remove and live without. Maybe you need to avoid eating out most of the time. Start cooking your own for your “baon”.  Lessen your movie days and you might want to watch some of them by renting dvds and see them at home with your friends and family. The story won’t change anyway even if you’re late seeing it than others. You may also cut off some from your vices (less bottles of beer per month). Cut off some of your magazine subscriptions. Try commuting once in a while. I’ll stop there.  I will leave the specific money saving ways to you since you know your situation better. The bottom line here is you need to save. This will give you more money to keep and quicker time to grow your “emergency fund” (more of this in the next posts) for such needs.  Check your lifestyle and spend wiser. This will help you and your family to survive if scenario 1 happens.

On the 2^nd Scenario, you also need to do everything that was mentioned above. But one important thing you must add to that to prepare yourself and your family is to get an insurance policy. In purchasing cars and houses, we invest in insurance to protect our investment for any possible damage that might happen. So logically, you must do it for yourself as your body is your number one investment tool. In our scenario, you were able to save at least Php 100,000 before death occurred. In reality, a lot of us have difficulty to save that amount even for a long period. But most are able to keep small amounts from time to time. But due to lack of self-control, many are not able to keep that money intact. More often than not, we are tempted to spend it for other stuff which are more often than not, unimportant. So when the time comes that they need the money, they don’t have anything to show.

Are you and your family in good hands?

Good thing today is that insurance policies offered by different companies are made to fit the different needs and capabilities of different people. There are still those traditional life insurance policies which most of us are familiar with. But better things now are being offered especially for the young ones. You can now start getting an insurance policy and at the same time start a long term investment which you can use as your retirement fund or for business start ups later on. Those small amounts that you’re able to keep and are tempted to use in buying unnecessary things can be put into better use in this type of investment. More on this type of investment in the next posts as well.

If we are really serious in thinking about our family’s future, it’s not hard to identify what we really need to start doing. On the next posts as mentioned above, we will talk about what we call the “emergency fund” and “insurance + investment” types of policies. But if you are raring to go soon about these things, just send me an email at laymaninvestment@gmail.com or at rogie_ylagan@yahoo.com and I’ll be happy to share with you whatever that is which I also learned from others. Good day and God bless.