My Reasons Why You Should (NOT) Get A VUL or Whole Life Insurance

Posted by Fitz Villafuerte under Personal Finance on April 4, 2013

In my previous Reader Mail post, I posted and answered the question:

Is insurance an investment?

I said that it is not an investment, but just a form of protection.

I also said that getting term-life insurance and short-term health insurance is important. In fact, you should have them before you even think of investing.

As a final point to my answer, I said that buying insurance with an investment component such as VUL’s and whole life insurance is a “second-tier investment” and the only reasons why you should buy them are:

  1. You’re “too lazy” to look for better investments.
  2. You already have funds and stock investments.
  3. You want to help a friend who’s selling you that type of insurance.

Yesterday, a reader left a comment in that post saying that he found my reasons “OUTRIGHT OFFENSIVE” – and for that, I’d like to apologize for hurting his feelings, and hope that we can just agree to disagree on this topic.

In any case, I’d like to further explain those reasons, as I think it’s important for everyone to understand why I said those statements.

On Being Lazy
Buying term insurance and investing the difference requires effort on your part to look for investments that will help you achieve your financial goals.

This means studying how UITF’s, mutual funds, the stock market and other securities work and make money. It will also require having the discipline to actually invest regularly and resist the temptation to spend your money instead.

If you’re “too lazy” to do all those, and you’re okay with getting the stated guaranteed cash value and possible dividends from whole life, or believe that the fund value of the VUL will perform at par or better than mutual funds – then go ahead and get them.

Note: Thanks to Ron for the added info in the comments section.

To be fair, insurance companies nowadays are coming up with better insurance + investment packages, with more options and more flexible terms. But as of the moment, if it were me, I’d rather invest it in an equity fund that could give an annual compounded return of 20% – refer to question 10 of the link provided.

Furthermore, it seems that Salve Duplito shares my views on this:

On Being a Second-Tier Investment
I’m a big fan of diversification when it comes to investments.

So if you already have the “best” ones such as investment funds and stocks, and you’re looking for a “paper investment” to add to your portfolio – then graduating your term-life insurance into a whole-life insurance is an option.

Personally, I’d rather buy more stocks or invest in a new fund with that money and just renew the term policy until the time comes that I don’t need it anymore.

Here’s Dave Ramsey explaining why you don’t need to be insured your whole life:

On Helping a Friend
Insurance agents earn on commission, and since a whole life insurance costs so much more than term life insurance, they’ll get more money from the sale. So if you want to help an insurance agent / friend make more money, then buy a VUL from him or her.

Unfortunately, Suze Orman thinks that your friend may not be your friend at all. Personally, I think that the friend is just “misinformed”, and I’m sure he or she has good intentions for selling whole life insurance.

So I hope Vic now understands why I said those reasons. And wish that we could just agree to disagree on this one.

Having a life insurance is important, but just like any product out there, not all types are good choices. I’m a big believer in term-life insurance, and I hope this post has helped you understand why.

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53 Responses to “My Reasons Why You Should (NOT) Get A VUL or Whole Life Insurance”


  1. kapengvarako.blogspot.com says:

    thank u for sharing ur insights about insurance, so far which ones are reliable after all the crises faced by our local insurance industry?

  2. Ron Magsalin says:

    I agree on being lazy, 2nd tier investment, and helping a friend. I do have clients like that. But i would like to clarify that VUL doesn’t have cash value and dividends. VUL has Fund Value just like mutual funds wherein the clients can withdraw (partial or full) or even switch funds if they want to. The fund value is based on the performance of the funds that they chose for their VUL plan. It may be peso bonds, balanced funds, or equity. Since these are investment funds, Fund values are not guaranteed so we cannot assume what the returns will be. It can be less than 5% or even more than 35%. Unlike Traditional whole life insurance, the cash values are guaranteed though the dividends depends on how the life insurance company is doing.

    The advantage of having a VUL is that when the insured dies, the insurance part and investments (FUND VALUE) will be given to the beneficiaries with less hassle than plain investments like stocks, bonds, mutual funds, UITF, etc. And if the beneficiaries are irrevocable, the benefits are tax exempted.

  3. Dr. J says:

    Great videos! Very persuasive arguments. Humorous (especially Dave and Suze) but very true. I like the way Dave describes in graphic detail the ideal life situation in the future where you really don’t need life insurance anymore because the kids are already independent, the mortgage is paid off, and you have substantial investments set aside.

    Suze’s life insurance background and revelation really explained to me why I get this impression that the big insurance companies and their sales people seem very well-off financially. I guess they have successfully convinced so many people to get whole life, VULs and similar products.

    I hope many people read this article and take the time watch and LISTEN to the videos. Very helpful to people who are about to decide on whether to get whole life and VULs. Keep it up Fitz!

  4. frugalexpat says:

    Hi Fitz,

    I totally agree with you.

    That’s why now we(hubby & I) have our term insurance and the rest of the funds are allocated to investments.

    Thanks again for sharing your insights.

    Cheers

  5. Fitz says:

    Hi Ron, thank you very much for the clarification. I’ve edited the post to correct the information given.

  6. Blackeyes says:

    Hi fitz,

    thanks for always keeping us informed. great job.
    i don’t have insurance and one time i saw this:
    https://www.mybpimag.com/index.php?option=com_content&view=article&id=659:bpi-save-up&catid=40:article&Itemid=795

    from bpi. since i already have an account with them, ive decided to have it.
    what do you think?

    thank you so much… :)

  7. Richel says:

    Hello po,

    I’ve been a subscriber of your blog for sometime already and this would be my first time to comment. Not sure why. Maybe because I have time? Haha!

    Anyway, am I correct in my understanding that the money you pay for a term life insurance will not be given back to you in the case that you are still alive and kicking when the coverage ends? I’m planning to get a life insurance policy for income protection purposes but at the same time I want it to become a retirement fund soon once I no longer need it. Ayaw q din naman po kasing mapunta sa wala yung perang binabayad q kahit na nga ba it isn’t too much.

    Thanks in advance for the enlightment. :)

    Chel

  8. Richel says:

    *enlightenment

  9. Ron Magsalin says:

    Hi Fitz!

    I really enjoy reading your blogs and I have learned a lot.

    I used to work abroad and didn’t know much about finances. I just started learning few months ago and your blogs are very informative.

    I have started investing with BDO UITF and now I’m attending seminars at COL all thanks to you. A lot my friends are too lazy to exert effort to learn more about finances but when i get the chance to talk to them, i share the things i’ve learned from your blogs.

    Keep it up!

    Thanks!

    Ron

  10. Well said Fitz, I believe that everyone should study first before going to VUL or Term Life.

    I have friends who have VUL but they don’t know what is it all about. When, I asked them about their policy, they have this mind setting that there is no risk at all on what they have. They told me that they will get dividends and sure interest later on. They don’t know that there is still risk with that investment.

  11. Fitz says:

    @Blackeyes

    BPI Save Up is a good start. The free accident and life insurance is just a bonus.

    The coverage is dependent on how much you have in your account (up to P2m) – that may not be enough but it’s okay if you’re not a breadwinner.

    If you are a breadwinner, then use your BPI Save Up to “save up” for a term-life insurance with adequate coverage.

    @Richel

    Yes, term-life insurance payments will not be given back to you – it’s an expense (an important one nonetheless). The cost of term life insurance is very small anyway, so don’t feel bad about not being able to “get it back”.

    However, as an alternative, you can look for a term-life insurance which you can convert into a whole-life insurance at end of term. There are packages like that out there.

    Hope I was able to help.

    @Ron

    Thank you also for supporting my blog, and helping me share the knowledge to others. Hopefully, your friends will soon realize the importance of what we are doing.

    Cheers to our wealth! 😀

  12. Carlos says:

    Hi Fitz!

    Excellent points. My personal opinion is that, in the big picture, a VUL benefits the agent more than the recipient.

    It just sounds great upon first hearing, but if we analyzing the costs, other viable alternatives, and missed opportunities, I have no problem saying VUL is not a good investment.

  13. Look says:

    Someone from Chinabank offered me VUL and the poster above is right it doesnt carry cash value and dividend payments. Good thing I know a little about investment products

  14. Richel says:

    Hello Fitz,

    Thanks for the confirmation. And yes, you were able to help. Thank you for a very great, informative post you have here. :)

    Cheers,
    Richel

  15. newbie says:

    Hi sir fitz,
    Whats your take on Philam Life’s Money Tree product? I already have a fami mutual fund, bdo uitf and citisec account.. do you think the money tree is a good additional investment oroduct for me in addition to those i already have? Thank you!

  16. Blackeyes says:

    thanks a lot fitz…more power to you..Cheers! 😉

  17. Desertman says:

    @newbie

    I’ve seen the money tree product a few months ago and my father in law got attracted to it instantly because of their 8% annual fund performance. If I’m not mistaken, it’s like a variable life insurance. But sadly, it did not attract me at all on these three simple reasons.

    1. It’s 8% fund performance is too low. Put your money wisely in stocks or UITF and it could earn around 14 or 16% at least.

    2. Let’s say you get it for P50,000 per year. The agent will get a commission on your whole P50,000 which makes it quite expensive. Just get a term insurance for about P12,000 and invest your P38,000 for a much bigger investment return and with lesser commission charges.

    3. The fine prints says that their 8% is based on historical fund performance and not a guaranteed return. But the market for the past 3 years in on a bull run, meaning the return is really quite good, much better than the 8% they are advertising, so better do it yourself instead of getting someone else do it for you.

    Hope you can visit my site too for some investment motivation.

    Just my two cents.

  18. Yeah I agree with your reasons too, sir Fitz.

    I am also a term-insurance believer.

    I pay for the insurance yearly and then I invest the remaining investable portion of my income myself.

    That way, I learn more and I have full control of my investments and investment decisions.

    Thanks for this and I hope more people can see the advantages of term life insurance :)

    BTW, I don’t sell insurance hehe

  19. Lois says:

    AGREE!

    I’m a big fan of Suze Orman! glad to see her name here! 😉

  20. Dman says:

    Hi Fitz,

    I am currently in a VUL since Dec 2012, which triggered my interest Financial Freedom and investments. Anyhow, reading this article and going around I am sorely tempted terminate my contract and go into investing by myself and do Term Insurance.

    This would of course make me forfeit my premiums. Do you think its a good idea to jump off or just keep the VUL?

    Thanks!

  21. cinta says:

    Good day! It is okay the prize P 2,500 for 1m Insurance, payable for 15 to 20 years? Thank u :)

  22. Peach says:

    Hi Fitz!

    I happened to attend your seminar last June 21. Whole life insurance is a TRADITIONAL insurance. Being that, people nowadays find ways to make most of their money. You compare term with a traditional which could lapse if you dont pay and more like an expense since it doesnt earn interest except if it is a participating policy which gives dividends. In VUL, it doesnt lapse if you already have a fund value. It has options whether to continuously SAVE or opt to a limited paying period. If you will deduct the cost of insurance charges and the difference of it being invested to market plus the expertise of its fund managers, I believe VUL is a recommendable type of investment. Plus it will not be a part of the estate if it is irrevocable. For Term insurance, what if the breadwinner has minor kids and or the spouse has no competent capability to provide for the family and the health of the breadwinner is compromised that he can no longer be insured by term, all the savings and investments will surely deplete soon. VUL has a lot more to offer and is a very flexible plan and very liquid. And yes it is offensive to make it appear like buying VUL is just “to help a friend selling one”.

  23. chris says:

    I am already intersted with the BPI save up plus insurance but when i read the general provision of the insurance,, it says like this:

    9. EXCEPTIONS. The following exclusions and restrictions on coverage shall apply:
    a. Deaths due to pre-existing and critical illnesses or conditions, whether such illness or condition is known or not to the Insured Individual at the time of account opening, occurring within one year from the date the insurance takes effect, are not covered.
    b. Deaths occurring in restricted areas including but not limited to, Iraq, Iran and Lebanon are not covered.
    c. Deaths due to suicide occurring on the first year, except as provided for by law
    d. For the Accidental Death and Dismemberment coverage, no benefit shall be payable if the Insured Individual’s death or dismemberment shall result, either directly or indirectly, from any of the following causes:
    i. Self-destruction or self-inflicted injuries whether the insured individual be sane or insane at the time of commission.
    ii. Bodily or mental infirmity or disease of any kind.
    iii. Poisoning or infection, other than infections occurring simultaneously with or in consequence of a cut or wound sustained in an accident.
    iv. Any injury suffered (a) while on police duty in any military, naval or police organization (b) in any riot, civil commotion, insurrection or war or any act incident thereto; (c) while traveling as a fare-paying passenger or otherwise in any form of air or submarine transportation, or while engaging in aeronautics or submarine operations, except while the insured individual is a passenger in an aircraft operated by a passenger airline on a scheduled passenger trip over its established passenger route; (d) while or because the insured individual is affected by alcohol or any drug; or (e) in any violation of the law by the insured individual or assault provoked by the insured individual.
    v. Atomic fission or radioactive gas.
    vi. Death or bodily injury or loss occurring one hundred eighty days after the date of the accident causing the loss.

    Especially number “iv.”.
    Based on my own understanding,does it mean the insurance is gone when you die from those causes?

    If it is? Then I lost my reason for getting an insurance..

    Happy to read your reply soon Sir Fitz!thanks in advance.

  24. dennis says:

    Hi Fitz,

    can u advice on what should i do if i already have a VUL and i really dont know how termed life insurance works. i dont know if i can pay a term life insurance on the spot. what i do with my VUL is i saved every month and paid it every quarter amounting to 7500 pesos. i like the idea that i get here, so please advise. i need to be enlighten on how can i escaped this VUL or if theres a way to quit.

  25. carlo says:

    I highly believe that a VUL is a good investment simply because you are hitting two birds with one stone, three even depending on the company where you bought your VUL. My current VUL with sunlife covers life,hospitalization and critical illness. Plus a portion of my money is invested in the fund of my choice. I can even pay more than my annual premium (it is actually encouraged) because the excess money will be invested in the fund of my choice. I see VULs as a “forced” savings and protection plan. If u dont pay your premium chances are your plan will be cancelled. At least when u pay annually you know that you are actually investing as well…
    Not everyone has the time and motivation to go to banks and or other financial institutions to invest and monitor their investments. VULs are good investment channels for busy netizens. If someone is invested then i believe that they do not deserve to be called lazy, regardless of their investment…

  26. Fitz says:

    @dennis

    Ask your agent if it’s possible to convert your policy to a term insurance.

    If you cannot, and if you can honestly and confidently afford the premiums, then just continue with it.

    If you cannot afford the payments, then study your cashflow and find a way to afford it by decreasing your expenses and increasing your income.

    Canceling the policy is your very last option and only if continuing it will severely affect your present finances.

  27. Fitz says:

    @carlo
    My term insurance is renewable until age of 70, has terminal illness benefits and accidental death, dismemberment and disability benefits (ADDD).

    From the same insurance company, I am directly invested in their mutual funds. So there’s really no extra time and effort spent on investing because I pay my premiums along with my investment top-ups.

    My insurance agent, who is also my investment solicitor, updates me with the performance of my mutual fund, apart from me getting quarterly reports via mail on the fund’s performance.

    If you have time to pay your insurance premiums, then you have time to invest. If you have time to watch television or read the newspaper, then you have time to monitor the status of your investments.

    VULs are for people who are too lazy to learn about their better options.

  28. dens says:

    Fritz, what is your insurance firm? I looked online and I only get termed life insurance for 5 year term only. Thanks.

  29. Beth says:

    Thanks Sir Fritz for this blog. This gave me a better understanding on what insurance shall I take.

    By the way may I know what is your insurance company? thanks again

  30. Alvin says:

    Hi Sir Fritz,

    I’m into the 2nd year of a VUL from PRU Life UK.
    Paying 25% of my monthly inflow into it.
    I read the contract and it has all these fees with a maximum charge.
    I’m afraid the company will raise it in the future that will diminish my investment and trapping me.
    Is it wise to terminate it?

    Thanks!

  31. Fitz says:

    @dens and Beth
    My insurance is PhilAm Life, but it’s not a product that’s available to the public, it’s exclusive for members of International Marketing Group Wealth Academy.

    @Alvin
    If you can afford to pay it, I suggest you just continue rather than putting all the money you have already paid to waste. It’s recommended that you talk to your agent and air your concerns so he or she can give you all your options.

    If you’re not satisfied with your agent’s response, then you can always ask for and talk to his or her supervisor.

  32. Diwata Luna says:

    Thanks for the post. A friend of a colleague is selling me a VUL. I’m doing my research as well as computations and projections. What I don’t like with their VUL is that on your first few years, only a little of your money goes to the fund. Therefore, even if the investment is long term, only a little amount earns more over time.

  33. Jhez bagaslao says:

    I have read your post and somehow agree and disagree at the same time. You only have highlighted the disadvantage of getting a VUL implying a bias perception to the readers. I agree that you may be are too lazy to look for better investment and that the person offering you is a friend are common reasons why we get a VUL. But there are also a lot of advantages of VUL over other forms of investments (like Mutual Funds, Trusts Funds and even directly trading stocks). A VUL is an investment and a protection rolled into one. A portion of your money put in it goes to premium charges (insurance protection) and a portion is being invested to either bonds, equity or both. The advantages? With VUL your investment is being managed by professional fund managers, expert enough to make your money work for you. And knowing that, it can give you that emotional security that your investment will give you the best return given the different financial market circumstances. Say you have invested in a Mutual fund, the market collapsed and your investment suffered a huge loss and you died of Heart attack. Your heir will inherit your losing fund value. But if you have put in VUL, your heir is guaranteed of a specific amount always higher than what you put up.

  34. Fitz says:

    @Jhez

    Having an investment and protection rolled into one is hardly an advantage. It doesn’t even save you that much time. Get term insurance and invest in the same insurance company’s mutual funds and it’s almost the same process because you’re paying the same company and probably dealing with the same agent. (Philam Life + PAMI, or Sunlife Financial + Sunlife MF, etc.)

    Moreover, the investment part of the VUL is invested in the company’s mutual funds (and nowhere else). So it will be the same as if I invested DIRECTLY into the mutual fund company. The only difference is that, I get to invest more money to the MF earlier (and earn more) because a big portion of the payments in the first few years of VULs just goes to the insurance.

    Lastly, a market collapse that will drag down mutual funds will include the mutual funds of insurance companies. There’s no advantage there – your fund value will also be at a loss. And if you have adequate coverage, your term life insurance will be able to provide the benefits for your loved ones to financially move on without you.

    A P1M VUL can give your loved ones around P2M benefits if you die and the fund is at a loss. But a P1M VUL will have around P30,000 annual premiums.

    Meanwhile, a P2M term insurance will only have P8,000 annual premiums. So the “higher” death benefits is really not an advantage here because you can get that benefit at a cheaper price.

  35. Merz says:

    I got my VUL 2 years ago with a premium of 50,000 pesos a year.. And when I got my policy, which I received very late, beyond the cooling off period, I was surprised to see the charges, which the agent didn’t tell/explain to me.Too late for me to cancel it..But just recently I decided to surrender it and hoping that I still get some amount back. Big loss, but I’d rather just invest my money in stock than continuing it…

  36. rosalie says:

    Hi Sir,

    I need your assistance for generalli philippines life insurance+ savings. I am paying annually 85k pesos . And this month of May 2015 is my second payment. As discussed by sales marketing in Bdo. I would be earning 12,00 pesos annually rather than to put on savings account. However I need to pay this on due time otherwise the policy will be lapsed. I took plan of 300k and the maturity date is 5 years. Since I have also investment in stock market , I’m planning to pull out my money after completed the payment in generalli Philippines instead ,I will put on stock market. Please advice me.

  37. peach says:

    Merz, sorry for answering your comment instead of from the blogger himself.. But I believe it is just as fine because what you got anyway primarily focuses on protection secondary is the investment part. For sure you have discussed about the benefits that goes with it and agreed with it.. And also I hope that you did a Financial Needs Analysis first before you signed up. you see, there are (in my opinion) 3 basic parts in Financial Planning; Foundation (money mgt, debt mgt, emergency fund, protection), Accumulation (investment, education funding, retirment funding), and Distribution (estate planning, etc). It is important that you should discuss about the Foundation part of your financial plan because that is the most basic. If you neglect the protection, whatever you have accumulated will just be consumed to address your emergency needs.. anyway since.you have cancelled it already, hope you will think about it again since all of us are not “supernatural” beings that we can never be stricken by these events.. As they say, nobody plans to fail but some fails to plan.. Hope you consider getting a protection first before going to the Investment stage. Though your agent should be transparent with the charges. Likewise, you should be very wise in choosing an agent and there is nothing wrong in getting a VUL. And being “lazy” is subjective. VALUE is more important anyway than the price. SHALOM.

  38. Jeff says:

    I just wonder why the title has a (NOT) inside a parenthesis. Why put parenthesis on the NOT?

    Anyway, as the article mentioned – insurance is not an investment, but it is protection. Everyone should get an insurance if you are over 21 and under the age of 65. Please don’t get insurance just because you want to help your friendly agent, but because it is a need (not a want) especially if you have a family.

    VUL is a special product offered by insurance companies that carry with it an investment component. So it is both an insurance and an investment, but each is treated separately. The investment portion, just like any other mutual fund or UITF is invested either in stocks, bonds or both and it is managed by professional fund managers. The performance of these fund managers may be viewed through pifa.com.ph or in the previous article by the author http://fitzvillafuerte.com/philippine-mutual-fund-companies-to-invest-in.html. (A number of these investment managers / mutual fund companies are also insurance companies).

    VUL can be a good alternative for those who lack the technical expertise, information and the time in directly managing their equity investments. It may have its disadvantages and risks (just like in any other options) but its advantages are not too bad if you try to study more about it. People should treat VUL as a long term investment activity (best to keep your investments here for at least 10 years).

    For those reading the article, the better advice should be for you to review your investments carefully before taking the risk, Nothing can be more risky than jumping into something you hardly understand. Knowing the risks and the charges your fund manager / stock broker is charging you is basic information you should know before you make any investment.

    Finally, rest assured that the insurance industry in the Philippines is strong. I have yet to hear about an insurance company that has closed down. (Those that you hear about in the news are NOT insurance companies regulated by the Insurance Commission). For your protection, it would be wise to check first if the insurance company is licensed and regulated by the IC.

  39. Jhane says:

    Well said peach… Be transparent …what most important is your protected not all will understand how play stocks… I have my VUL it almost double the amount I invest in 5 years time…

  40. Tine says:

    I couldn’t help but to comment on this discussion. I got a term insurance with investment before because of what I thought was better. But going back, I should have invested in a VUL product. Why? A 36k annually for a VUL payable for 10 years has a total investment of 360k. For the first 2 years, certain amount of what I’m paying goes to my insurance amounting to 58,680 and 3rd til 10th year 100% of what I paid for goes to my investment. With that 58,680, I am protected until 100 years old, with critical illness coverage, accidental death, medical reimbursements, hospitalization benefits, disabilities and the sum assured if anything happens to me. My total insurance cost vs. my total investment for the VUL product is only 16.3%. For the investment part, I chose to put it in equity and the fund managers invest it in blue chip companies. You can see them on the top list of performing funds and I’m happy about it. Remember the rule to save first once you receive your income? VUL companies do this. They write to you and agents remind you to pay your premiums. For term insurance, yes they do that, but how about mutual funds if you will have them separately? VUL makes clients more disciplined. It’s up to the client whether they take it positively or negatively. As for my term insurance, I got the cheapest that time and it costs me 23K per year payable in 5 years. Total investment? 115k. And it’s a term insurance. I got a mutual fund together with this term insurance but I could not religiously commit to put money in my fund.

    I highly disagree with this statement “You’re “too lazy” to look for better investments”. VUL is Insurance + Mutual Fund. How does one becomes lazy?

    I wouldn’t argue further if traditional life insurance is being compared with term insurance because putting money on a traditional insurance is really not worth it. I hope readers will have a better understanding about VUL. There are several types of VUL products per company and it’s just a matter of choosing what’s best for you and the agent is a big factor. Some people who had a bad experience with VUL products might have an agent who is just after the commission so they offer the wrong product to the person.

    I have nothing against term insurance, it’s just a matter of calculating and researching further on where to invest your hard earned money.

    Happy investing everyone! :)

  41. Fitz says:

    BTID vs VUL is always a divisive topic, even among us Registered Financial Planners.

    There have been many attempts to compare them based on actual figures and both sides have always come up with results that favor their side.

    However, I believe that protection always comes before investing. And getting a term insurance is the cheapest option. I’ve met too many people who had to let their policies lapse because they can’t pay their VULs anymore.

    Also, it’s important to note that insurance companies are dynamic organizations. They used to push for whole life, but now, they’re pushing for VULs.

    But because of the many advantages of doing BTID, most of them are now redesigning their VULs to lessen those advantages – which includes offering term insurance that can be upgraded to VUL before the end of term. Some, have even increased the cost of their term insurance, to lower the gap between their VUL plans.

    So, I will not be surprised if someday, VULs become the better option to plain vanilla term insurance. Or maybe, there will be a new type of insurance that will make VULs obsolete.

    But that’s in the future… for now, I believe BTID is still the better strategy.

    Some people got offended when I said that those who get VULs are lazy. For me, that is the truth based on the numerous observation I’ve made through the years of those who mindlessly bought VULs.

    But what many people failed to recognize is that I’ve written in the post two other reasons why you can get a VUL – and that is to help a friend who needs to reach a sales quota – or, if you’re looking for a second-tier investment for diversification.

    On that third reason… you are definitely not lazy if you already have pooled funds, stocks, real estate investments, etc. However, you’re still looking for a place to invest – and thus, getting a VUL now makes sense.

    Life insurance, whether term or VUL, is simply one of the many tools that a person can use for financial planning. It is not the only solution to the countless life scenarios that may happen.

    Cash deposits, insurance (life, health and non-life), investment funds, stocks, real estate, memorial plans and many others – these are all tools that are available for you.

    Here’s the thing… I’d like to share my own financial strategy with respect to life insurance. So that you may better understand why I am on the side of BTID.

    We can just agree to disagree if you believe otherwise.

    ===

    1. Get term life insurance because it’s the most affordable type that can protect your family financially in the short-term. A must for breadwinners who don’t have a good financial foundation, i.e. no savings, no investments.

    2. Now that your family is protected just in case you die to soon, it’s now time to take care of the possibility that you live too long through investing. Invest to create passive income and grow wealth for retirement.

    3. You have entered your wealth accumulation phase. Just renew your term life insurance when it expires during this phase.

    4. After the value of your assets have substantially grown (net worth of more than 2.5 million IMO as based on the current exemptions when it comes to estate taxes), it’s time to upgrade the use of life insurance from simple protection towards its inclusion in your estate planning.

    5. At this phase, term life insurance is still the cheapest option, but VULs can now be included in the consideration because:
    a. You can comfortably afford paying the higher premiums.
    b. You already have a good financial foundation, i.e. you have investments in various instruments (stocks, mutual funds, etc.) and own several high value assets (real estate, etc.)
    c. You’re leaving the wealth accumulation phase, and preparing to enter the wealth distribution phase of one’s financial life.

    6. In case you enter this “transition phase” at a time when you can’t get any type of life insurance anymore because no company wants to insure you; or it has become too expensive to get at your age, then all is not lost when it comes to estate planning because there are still other tools that one can use such as putting up a family corporation, etc.

    To conclude, I believe that life insurance plays a dynamic role in one’s financial life. Its first use is for protection just in case you die too soon – to which term life insurance is the best answer.

    As you go through your wealth stages, life insurance slowly becomes a tool for estate planning, to which VULs (especially Single Pay VULs) become a viable option.

    Plan your life well. As for me, upon reaching the proverbial retirement years, I will slowly liquidate all my assets and enjoy life until all that’s left of it is just enough to pay for my basic living expenses and my funeral.

    In the meantime, everything I know and will learn about financial management, I will make sure to pass on to my children, heirs and loved ones. This is my final goal so that they will have no desire to inherit my money because they have learned how to create their own wealth.

  42. peach says:

    I’m sure Fitz that among your colleagues as Financial Planners, they have their own opinions about BTID or VUL. But it is only from you that I have heard that one of the reason why you will get VUL is because you want to help your insurance agent friend. “Thanks” for that very bold statement. I am sure my wallet is more happy than the families I have hoped to help.

    At one point, I am sure that I have read an article from your blog discussing about VUL and a part of that article you have also discussed about Kaiser. First, I dont see the link between Kaiser and VUL since Kaiser is not regsitered in IC. And if Kaiser is your reference to VUL, I understand all these points absolutely. I just cant find it anymore, maybe you deleted it.

  43. revs says:

    Great discussions and insights here..thanks sir fitz been learning a lot from you :)

  44. Bryan says:

    I believe that each person has its own view on things but let me point out what the difference between VUL (whole life) and Term insurance

    Price on premiums

    Term insurance – premium increases over time, usually every 5 years.
    VUL – premiums are diminishing, and on the 6th year and onwards, the insured will only have 5% paid on premium.

    e.g. Mr. X at age 30- insured for 1M with ADB, 1st year premium 23100
    Then on the 6th year up to age 88, premium charge would only be P1155.

    Imagine that with Term insurance, how much does term insurance cost at age 60 and onwards, can someone buy and insurance with 1M coverage for P1155?

  45. Bryan says:

    I strongly believe that their two points of view on this matter.
    1. Having to Invest
    2. Being insured

    The words used that is saying lazy, is quite offensive if we view it on the part of being insured, because if we try to do all the math of where would a person get the most out if his money in order to be insured since after the 5th year, the insured’s premium charge would only be 5%, I can greatly say that VUL would be good choice.

    On the part of investing, I can say that there are a tons of options on where someone could invest. And on the main point, the main need supplemented by VUL is the protection.

  46. ralph says:

    This one can be true but its does not mean you follow his thought. I my self loves the idea of being insured first, than invest into bigger investment opportunity.. I got traditional life insurance policy or whole life plus endowment I also have VUL for investing component (equity & bonds) while maximizing may insurance coverage plus answering the financial needs of my family when I’m no longer around.. now after all this me and my spouse start investing to real estate and setting up traditional business investing in partnership and in other companies with friends and so on… we are also a fan of mutual funds and UITF.

  47. myk says:

    before you right this blog you must really know what is VUL.there two types of VUL,single pay which the insurance is only 125% of the investment,multiple pay is more flexible the minimum insurance x5 of the investment and it can be stretch in higher insurance it depends of clients protection need…

    myk
    financial planner/insurance agent

  48. Asset says:

    Its just unfair to say that VUL is for lazy people.

  49. Cely says:

    Bakit parang ang mga galit sa article na ito ay puro insurance agents? Meron ba dito na hindi ahente na kumuha ng VUL at masasabi nilang mas maganda yun kesa sa BTID strategy?

  50. Heide says:

    I absolutely agree with you. Though VULs do have benefits and ROR, it’s not an investment where money is optimized. If the goal is to optimize money at the highest return that we can get from it, VULs are not the right choice. I’ll say, it still depends on our goals. For average Filipinos with average income, I would not recommend this type of investment.

    Heide
    http://www.heidepadilla.blogspot.com

  51. John Lagdameo says:

    good for you if you have the time and the knowledge to diversify…but not everyone is like you. Some people are lazy and they just want to invest and not think about other stuff.

    that is what there products are for…its not for everyone. I applaud you for giving insight to these matters….

    personally…If my money earns just 5% im golden. compared to a normal savings account its a total win for me and I dont have to do nothing.

    these products are there to make our lives easier and focus on other things.

    unfortunately comfort comes at a price and obviously the insurance company will take their cut on things. but that is just how it is…its a business and a business has to earn income to continue to do business.

    If you have the time to actually study all those things then fine do what you have to do but if you want the comfort and the idea that these things are being taken care of for you then go for VUL and the likes…

    just my two cents…

  52. Dreus says:

    Will there ever be a time where you don’t need insurance anymore? Even billions will be subject to estate tax upon death. Pay the amount or pay the smaller obligation?

    I think it is better to understand the purpose of every product. If there are bad products out there for financial industry then it should not be allowed in the market. From banks to insurance to investments. Right product for the right purpose. The only problem are those who sell just for the sake of selling.

    Stocks are not the right product if you are looking for protection, neither are time deposits for long term investments, and insurance if your main purpose is to maximize returns while living.

    We need the right product for the right purpose. To be informed not just sold.

  53. aireen says:

    I have a VUL with Philam that has additional RIDER for accidental and medical reimbursement. It was only after two years that I realized this is expensive for a 1.9M coverage apart from the life insurance tied up with investment. Can I request for the rider to be terminated within the holding period of my VUL?

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