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What You Should Know About Investment-Linked Insurance

Majority of Filipinos still do not see insurance as a priority to include in their monthly household budget. Part of the reason could be cultural while the economic factor plays a big role as well but in recent years, the scenario is changing.

Last year, the insurance industry saw double-digit growth of 11.9%, Asian Insurance Review reported earlier this year. According to the Insurance Commission, total premiums in the Philippine insurance industry reached PHP259.6 billion (US$5 billion) in 2017, a growth of 11.9% from PHP231.8 billion in 2016.

By the third quarter of 2017, about 48 million lives were covered by life insurance policies. While this number does not represent even half of the country’s over 106 million inhabitants, it’s getting there as this means that 45% of the population is now covered by life insurance policies.

Compare this to 2010, when life insurance coverage stood at 16.33 percent of the population, amounting to 15.4 million lives at the time.

In a statement released by the Insurance Commission in May this year, Insurance Commissioner Dennis B. Funa had revealed the sectors of the industry registering strong growth.

“While the premiums generated from both traditional life insurance products and variable universal life insurance products posted double-digit growth, the increase in the premiums collected of the life sector is attributed to the 51.24% growth in the sale of variable life insurance products,” he stated.

In fact, variable life insurance (VUL)s have helped insurance companies sell more life insurance policies compared to when they were just offering stand-alone life insurance coverage as more Filipinos are warming up to the idea of combining insurance and investing.

What is Variable Universal Life Insurance (VUL)?

VUL is a type of insurance policy is a permanent life insurance and investment rolled into one. What you get are disability, death, and living benefits, with an investment combo. Variable basically means investment return that’s dependent on the rise and fall of the market where your premium will go.

There are many opinions over whether unit trust, mutual fund or insurance linked to investment is the best bet, but the flexibility offered by VUL which covers both bases of one dying too soon to outliving the policy is increasingly what consumers want.

Any product linked to investment returns carries a degree of uncertainty but it will provide you a permanent insurance policy as long as you’re paying for the premium, while the investment portion is subject to the risk and the benefits of market conditions.

What are you actually getting when you buy a VUL policy?

In layman terms, it’s a 2-in-1 product combining the benefits of income protection and investment opportunity.

The life insurance aspect provides the income protection for your family needs in the event that you are not around.

However, prospective policyholders should be aware that the investment portion can’t guarantee a positive ROI in the short term.

While the investment performance does not offer guarantees, but it does offer flexibility and potential growth comparable with the money market accounts that many consumers want as way to ensure that their invested money works harder to generate returns over time.

Following is a chart of VUL assets performance in 2017 as compiled by the business portal, Entrepreneur.

Fund NameAssets under managementROI (1 year)5-year ROI (annualised)Management/ Trusteeship fees
PRUlink Bond Fund17,8400.94%1.53%
BPI-Philam Peso Bond Fund9,2031.77%1.50%
Manulife Peso Secure Fund3,5400.71%4.83%1.75%
BPI-Philam Odyssey Bond Fund3,155-0.67%1.00%
Sun Life Income Fund2,407-0.98%4.78%
SLG Income Fund2,130-0.73%
AXA Philippines Wealth Bond Fund2,0010.10%1.23%
Sun Life Bond Fund1,370-0.90%2.55%
PNB Life Peso Fixed Income Fund1,180-1.05%4.33%1.50%
Sun Life Balanced Fund20,640-2.74%5.46%
Sun Life Opportunity Fund18,730-2.68%5.78%
PRULink Proactive Fund16,650-2.14%2.25%
AXA Philippine Wealth Balanced Fund10,999-2.19%3.54%
PRULink Growth Fund9,840-2.16%2.25%
SLG Opportunity Fund7,356-2.71%
PRULink Managed Fund6,740-0.19%1.79%
Manulife Peso Dynamic Allocation Fund3,790-2.17%2.25%
Manulife Peso Diversified Value Fund3,720-0.11%5.29%2.00%
Sun Life Dynamic Fund3,669-2.55%
SLG Dynamic Fund2,732-2.59%
BPI-Philam Odyssey Balanced Fun2,329-1.97%1.50%
Manulife Peso Target Distribution Fund1,880-0.48%2.25%
BPI-Philam Balanced Fund1,137-1.53%1.50%
Sun Life MyFuture 2040 Fund1,113-2.04%8.68%
PRULink Equity Fund37,070-2.33%2.25%
AXA Chinese Tycoon Fund21,679-1.31%11.76%
AXA Philippine Wealth Equity Fund12,286-3.42%9.11%
BPI-Philam Equity Index Fund 210,789-3.37%1.50%
Sun Life Growth Fund10,763-1.74%7.90%
Sun Life Growth PLUS Fund8,869-2.81%
Manulife Peso Growth Fund8,740-2.61%10.02%2.25%
BPI-Philam Equity Index Fund5,611-3.97%1.50%
Sun Life Equity Fund5,480-1.78%8.19%
Sun Life Captains Fund4,354
AXA Opportunity Fund3,954-4.40%9.08%
BPI-Philam Growth Fund3,540-4.18%2.00%
SLG Growth PLUS Fund3,153-2.89%
PNB Life Peso Optimised Dividend Equity Fund2,5192.16%2.00%
BPI-Philam Philippine High Dividend Equity Fund2,127-4.34%1.50%
SLG Growth Fund1,829-1.87%
FWD Life Peso Growth Fund1,457
Manulife Peso Equity Fund1,420-2.40%10.30%2.00%
Sun Life Index Fund1,272
PND Life Peso Multi-Sector Equity Fund1,205-1.59%2.00%
BPI-Philam Odyssey High Conviction Equity Fund1,083-5.60%2.50%

What does VUL cover?

VUL insurance is not new but it has seen growing acceptance in the Philippines in recent years. While insurers’ individual policy terms may vary, all VUL policies contain the basic function of offering life insurance with options to add riders to your policy.

Adding riders to your VUL policy offers additional coverage and protection for contingencies such as accidents, disability, and illnesses.

Examples of life insurance riders you can add on your insurance policy for an additional premium.

  • Critical Illness Rider – a key rider with living benefits that is one of the most common riders recommended
  • Hospital Income Benefit – this type of rider provides daily income benefit while we get hospitalized and lose our income
  • Total Disability Premium Waiver – this rider is an important one as in case of permanent disability, the insurance premium is waived

There are also riders with additional death benefits like a term rider, accidental death benefit and payor’s benefit which provides added benefits for your beneficiaries.

Combining insurance and investment allows you to accomplish two things at once, but as with all investments, there are risks involved.

Why would you consider VUL?

Not all investors have the same requirements so a VUL policy is not for everyone.  

This is a good option if you fall into the following categories:

  • You are a first-time investor who has yet to master the intricacies of investment-linked plans
  • You hope to be able to save on money paid out to your insurance policy when you are older
  • You want a plan that can continue to grow and keep you covered in the event you are unable to do so due to critical illness
  • You have dependents who rely on you solely for their daily needs

If you want insurance coverage combined with long-term diversified investments that come with flexible options and affordability entry point to start investing, a VUL policy is worth considering.

Why would you not consider VUL?

If you are looking for an investment that can deliver immediate benefits within 1 to 5 years, a VUL policy is not the answer.

Remember that the primary aim of the policy is still to offer insurance protection and the investment component is a long-term venture and may take years to realize its potential, certainly not in the first few years as a large portion of the initial funds will go towards charges.

Definitely not recommended for those looking for short-term investment goals.

Ultimately, when it comes to insurance, there’s no such thing as the best insurance policy. Depending on your specific needs or your long-term goals, what may suit you may not necessarily fulfill the needs of the next person.  In some cases, VUL will not be the best insurance policy, while for some, it is.

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