What is VUL?
Also called Variable Universal Life, Variable Unit-Linked, or non-traditional life insurance. VUL is an investment-linked life insurance plan that provides life insurance protection and the opportunity to grow savings over time with the option to choose the vehicle of investment and the amount of premiums.
Your fund types depend on the type of investor you are, your goals, and your objective for the money. This is usually classified as conservative, balanced, and aggressive. The fund type, consistency of payments, and top-ups you pay will determine the fund you will have – hence the word variable. The higher the amount that goes to your fund value and the better the performance of your chosen fund, the higher is the possibility of your beneficiaries’ death benefit and/or your future funds.
Components
Insurance protection
Pays out a minimum guaranteed amount of insurance coverage in case of Insured’s death.
Savings/Fund value
Accumulates a variable and non-guaranteed amount that is linked to the investment fund or funds chosen by the client.
Important VUL-related Terms
Unit Pricing. The process whereby the unit price of units is set.
Offer price or selling price. The price which the insurer uses to allocate units to a policy when premiums are paid.
Bid price or buying price. The price which the insurer will give for the units if the policyholder wishes to cash in or claim under the policy.
Top-ups. Single premium injections which can be used to buy additional units.
Premium holiday. The cessation of premium payments on variable life insurance contracts for a certain period of time, with the intent to continue it later on.
Allocation of premiums. The periodic distribution of premiums to insurance and units. Fees that are charged to VUL contracts: Policy fees, Fund Management Fee, Change in Fund Allocation Charge.
The Fund Types. The variable funds on top of the life insurance premiums are invested in cash or investment instruments: Three main fund types are conservative, moderate, and aggressive:
- Conservative is less risky, economic downturns less likely affect your funds as compared to aggressive, but growth is not the same as aggressive. This is also called as Fixed-Income Securities which may include bond funds, money market funds, dollar bonds, and global income funds.
- Aggressive is more risky, economic events will most likely affect its performance but its long-term growth has better returns compared to conservative. This is also called Equity Securities. It includes index funds, stock market equity funds, and global growth funds which includes investing in top-performing companies in the world.
- Balanced is a mixture of both or is designed to start as aggressive, and gradually transform into an aggressive as the agreed year approaches. (e.g. My Future 2040 Fund of SunLife)
What are the benefits of VUL?
- Freedom to choose – you can choose to beat inflation and get better returns because historically, bonds and stocks perform better that savings deposit interest. The potential return that you will enjoy in the future is in your hands. You have the power to choose which funds your money will be placed.
- Diversification – when you have chosen a fund, each contribution that you make not only goes to a single company but is invested in several companies. It is actualizing the saying “spreading your eggs in different baskets.” Diversification is a good practice to mitigate risk.
- Professional Management – knowing when and what to buy takes years of study and experience. With VUL, you don’t need to study them all. Just go and focus with your vocation, family, or job. VUL Fund Managers do the rest for you. It’s instant knowledge and expertise.
- Life insurance coverage – there is a built-in life insurance coverage in this solution which guarantees a certain amount to pass on to your family in case unexpected death knocks on your doorstep. The continuity of income and money for final expenses are guaranteed.
Disadvantages of VUL
- Market downturns may affect your fund value. That’s why it is better to be clear with your goals, especially, when you need the money or what is it intended for.
- Extra charges for fund managers. You have to pay for their services which is usually zero if you invest the money on your own.
May also be called as Investment-Linked or VUL. They are:
- Sun FlexiLink1
- Sun MaxiLink One
- Sun FlexiDollar1
- Sun FlexiDollar
- Sun MaxiLink Dollar One
- Sun FlexiLink
- Sun MaxiLink100
- Sun MaxiLink Bright
- Sun MaxiLink Prime
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