Life Insurance Comparison: Weighing The Pros and Cons of Each Type of Plan

If you have friends or family who are life insurance agents or work in the industry, chances are you’ve already heard of Variable Unit Link (VUL) plans. These hybrid products became increasingly popular since 10 years ago among those shopping for insurance coverage due them combining the benefits of different types of life insurance together.

Are the benefits better than what you get from traditional plans? This is a question that we want to answer in this blog entry by taking a look at the components and benefits of VUL plans.

What is Variable Unit Link insurance?

VUL consists of two components: life insurance and investment. The life insurance component, as you may already know, lets your beneficiaries make a death benefit claim upon your passing. The investment component, meanwhile, lets you earn cash value through mutual funds.

Something to note: VUL is first and foremost a life insurance product. While it does have an investment component, it’s unethical to say that that it’s an investment product, as some advisors might have you think. You should buy VUL for the life insurance benefits first and investments second, not the other way around.

For VUL, you have regular pay and single pay. The former provides you a larger coverage with smaller premiums, while the latter puts a capital protection over your investment with larger premiums.

Whichever of the two you choose, one thing remains true: there’s no guaranteed returns in VUL. Some risk is always involved. Unlike in traditional plans where you earn dividends from the insurer, the investment here is in mutual funds where there can always be fluctuations and volatile periods. This means that your investment moves with the market.

Take our current COVID-19 situation as an example. There’s a global crisis that’s impacting the market’s behavior. You can’t foresee things like these, and it’s beyond your control. So you can’t really expect your cash value to always be on the upside.

In short, nowhere in the fine print of your VUL will it read that the investment is guaranteed.

We’re saying this not because we want to discourage you from purchasing a VUL plan – that’s not our intention – but because we want you to set the right expectations. After all, there are situations when a VUL plan might be better a choice than traditional plans. We’ll talk more about that a bit later.

What are its features and benefits?

We’ve already talked about the two of the most important benefits of VUL plans, which are the death benefit and cash value from investments. However, there are still a few other features and benefits that are worth mentioning.

One such benefit is the option to have premium holidays, which lets you enjoy periods of not paying premiums. This is possible because your plan has cash value, where your insurer will get your payments from.

But doing so puts you at risk of depleting your previously accumulated cash value. And when it becomes insufficient, you could lose your coverage. Your insurer will let you know about it, and you can then start paying again to retain it.

It’s important you know this so that if you ever decide to go on premium holidays, you understand the risk. We strongly recommend that you at least pay for the insurance charges when you go on premium holidays to at least reduce some of the risk.

Now that we’re in the subject of payments, the insurance charges in your premiums are not leveled. They increase as you grow older, and can even go up on an annual basis. These are things you have to keep in mind as well before buying a VUL plan.

Similar to other types of life insurance, you can avail of riders that cover you for total disability, accidental death and dismemberment, and critical illness. These are optional and can be bought a la carte from your VUL plan.

The maturity period of a VUL plan is until 88 years old. If you outlive your plan, your accumulated cash value will be given to whoever you designate as beneficiary, which could be yourself.

Who is it for?

When we explain VUL to people, we usually use this analogy: you have a basket that you put eggs into, but that basket has a hole in the middle. So, as you put more eggs into it, some eventually fall off. And there’s no way to cover the hole, it’ll always be there. The only thing you can do is to put more eggs in.

The idea applies to VUL. There’s always risk involved, where it’s possible for you not to make any returns, depending on the market. This is why we think this type of plan is more suited for people who can tolerate risks. It might also take a while to see returns, so it might be better for those who are building their investment portfolio at a younger age. Those in their 50s likely won’t get much out of a VUL plan, and might benefit more from a traditional plan.

In case you’re unsure about your risk appetite, ask yourself: Will I be able to sleep at night knowing that I have to pay premiums during this pandemic, which doesn’t seem to be ending anytime soon? If your answer is yes and you feel like you’re comfortable with your financial situation, then perhaps VUL could indeed work for you.

But if you’re still unsure, help is just a call away. Don’t hesitate to consult with us. We’ll help you find the best life insurance plan for your personal needs. Book an appointment today by calling (+63) 917 891 9069.