Financial Literacy 101

INVESTOPEDIA  defines as a form of cash value life insurance that offers both a death benefit and an investment feature.The premium amount for VUL is flexible and maybe changed by the consumer as needed, through these changes can result in a change in the coverage amount.

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In layman's term, it is just an insurance that has investment component on it. So it is a 2 and 1 product that allows your money to grow while you are protected. If you dies too soon while building your wealth then your beneficiary receives the insurance coverage plus the accumulated cash value ( investment).

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You may be wondering where does the insurance company invest your money for it to grow overtime?

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When you get a VUL policy, you have the options where you want your money invested depending on your risk tolerance. You can choose to invest it in equities (stock market, bonds, money market, etc. Since again it is being invested, there is a corresponding risk since there is no such thing as "no risk" investment, otherwise it is a scam. The good thing about it is your money is being managed by an expert and licensed fund manager and being invested in the best companies listed in the Philippine Stock Exchange and also in government entities. The entire investment is being monitored closely by the Securities and Exchange Commission.

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CASH VALUE

 

The cash value is the portion of your investment that grows overtime and can be withdrawn anytime if you need the fund for tuition, emergency and other expenses. I strongly recommend to keep adding funds (Top Up) on your VUL if you have extra money so your money grows faster.

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HOW LONG WILL YOU INVEST?

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The answer depends on your goals and your budget as well. Generally, the early you start and the longer you invest, the bigger the return is. That is why we always encourage young professionals and employees to invest early in their lives to secure their future. You also have the option to invest in a single pay VUL meaning you only invest 1 time like 100k or more and just let your money grow.

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SOME PROS AND CONS:

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PRO #1: It has Death Benefit

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Since VUL is a product that has insurance and investment component, your beneficiary receives the guaranteed amount if you die too soon. The insurance proceeds can be used by your family as a replacement of your salary.

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PRO #2 : The Premium is flexible

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For VUL, you can decide if you want a higher death benefit but of course a higher premium or lower death benefit with lower premium. So it is basically depends on your need and budget.

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CON# 1: Higher Fees

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Since VUL is being invested in other investment instruments, there are policy charges and some management fees being deducted from your premium.

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CON#2: The Policy holder also assumes the risk

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Since the cash value is invested in equities, bonds and money market, there are corresponding risk involved considering the volatility of the market. But when it comes to investment, experts say that the higher the risk, the higher​ the return and the lower the risk, the lower the return.

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To summarize, investing in VUL is a wise move to do especially if your knowledge in investing is minimal. All you need to do is to set aside a portion of your income on a regular basis for a long period of time and let the expert take care of everything as you watch your money grow and eventually working for you.

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I hope this helps!

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