07/04/2025
Thinking about getting a VUL (Variable Unit-Linked) Life Insurance?
It's crucial to understand its core purpose. While the investment component is attractive, the *primary* strength of a VUL is the immediate, significant life insurance coverage it provides from day one.
Let's break down how it works:
* **Your premium's first job is protection.
** A significant portion of your payment goes towards securing that immediate death benefit.
* **A portion is invested.
** The remaining amount goes into what's called your **fund value**. This is where your money has the potential to grow through investments.
* **Monthly charges apply.
** Think of it this way: to maintain that life insurance coverage, there are monthly deductions from your fund value. These charges essentially pay for the ongoing insurance benefit.
* **The power of investment.** The beauty of a VUL is that your invested money (the fund value) can potentially work for you over time. And importantly, the monthly cost for the life insurance is drawn *from* this fund value.
**To make a VUL work effectively for you, consider these points:**
* **Consistent and potentially extra payments are key.
** Paying on time is vital. Going above the minimum or even paying in advance helps build a strong fund value, which acts as a buffer against those monthly insurance charges.
* **Insurance costs increase with age.
** As we get older, the risk of mortality increases, and so do the monthly insurance charges deducted from your fund value. If you consistently fund your VUL, this increase is less likely to become a problem.
* **Underfunding can lead to issues.** If you don't regularly contribute enough to your fund value, the increasing monthly insurance charges can eventually eat into your investment gains, potentially impacting your coverage or requiring higher premiums later on. (You will not notice the increase of the insurance charges immediately. A significant increase usually happens in your 60s and above. For you to have an idea, I suggest requesting for a yearly renewable term proposal for you to see the increments as you get older.)
I personally prefer getting a VUL plan over getting term insurance because of the fund value. With term insurance, I need to always pay. With VUL, I can take breaks and can afford to stop paying for a time if I have difficulty paying the premiums. I can assure that I will still be insured because as long as there is enough money in the fund value to pay for the monthly charges, I am insured.
**Important Note about VUL Proposals:
** When you look at the **projected benefits page of a VUL proposal, keep in mind that the figures shown are *already net of the applicable charges*. These projections also assume that your premium payments are made *annually and on time*.**
**My personal take?
** I have a VUL and I understand its mechanics. Compared to traditional life insurance plans with guaranteed cash values, dividends, or endowments, VULs can often be more affordable.
**Here's my strong advice before you decide:**
* **Get multiple proposals.
** Don't rely on just one. Ask your advisor for proposals for different types of insurance plans so you can see the comparisons for yourself.
* **Ask about guarantees.
** Specifically ask your advisor which amounts are guaranteed in each proposal.
* **Understand the payment terms.
** Clarify what plans have a guaranteed number of years to pay and what plans do not have this. (Different life insurance plans have different payment terms. There are plans that you pay until age 100, there are plans with limited payment terms. For traditional plans, if they say it is only 10 years to pay, it is really 10 years to pay. For VUL plans, if they say that it is 10 years to pay, that is not a guaranteed scenario. In the future, if the fund value is not enough to pay for the monthly charges, you will be required to pay again if you still want to be insured.
* **Explore different scenarios.
** Work with your advisor to create various projections. This will help you find an insurance product that truly aligns with your risk tolerance, preferences, financial situation, the specific problem you want to solve (like income protection for your family), and your long-term goals.
**Remember, no single financial tool is a magic bullet.
**My suggestion is to explore and potentially utilize a mix of different financial solutions to comprehensively address your needs and aspirations.
Transparency is key: The author operates independently and is not connected to any particular life insurance company. The information shared stems from her own experiences, viewpoint, and continuous professional development. She strongly believes in equipping both advisors and clients with a broad understanding of available financial tools to facilitate effective and mutually beneficial collaborations.
