WHAT used to be regarded as variable universal life (as it was more attached to life insurance than as an investment) is now known as variable unit link that is attached to an investment like bonds, equity or other better-yielding instruments.
Sun Life Financial said that VUL is becoming a trend with most multinational insurance companies offering it in their insurance policies. In a VUL, the investment and savings components are separate from each other.
“Local companies are catching up and are beginning to introduce it. But for them to be successful, they must have investment expertise as VULs are harder to administer,” said Rizalina Mantaring, Sun Life president and chief executive officer.
Insurance companies invest small in equities because of the low interest, plus administrative costs, leaving very little for the customer or planholder, she told The Manila Times in an interview.
The reasons why clients opt for VUL is that the premiums they pay are linked to investments that will earn them more over time. “If clients want to pay in a short period—say five years the usual period chosen by athletes and celebrities because of their limited period of productivity—the higher the premium payments. This is because they pay in five years what others in the regular payment scheme pays in 10 years, “ Mantaring said.
She explained that VULs come in two kinds: the single pay and the regular pay. The regular pay is very much like paying installments for the traditional policy, which is intended for protection, except that there is a separate investment component. In the traditional insurance, there is a savings component.
The client tells the insurance company where to invest the fund either in equities, bonds or combination of the two. “So he chooses what type of fund he wants but we manage the funds as their hired investment professional,” Mantaring explained.
With VULs, there is a potential to earn higher returns and there is no need to invest all in guarantees. But it is basically for protection for the single pay VUL (which is almost purely an investment and very little for insurance).
Proof of how popular VULs have become popular is that in 2008, the ratio between insurance and investment was 50/50. But now the bulk or 90 percent of savings is in VULs.
Regular pay is when clients pay their policy every year, but a single pay is one-time payment that has very small insurance component.
Meanwhile, the regular pay is more for insurance.
Mantaring said that VULs are just like any insurance product that depends on a person’s age.
If a person is 30 years old and wants to be insured for P1 million, the regular pay is P20,000 a year (until retirement age) for non-smokers.
A smoker must declare upon application that he or she smokes, but the premium is higher as smoking increases the risk of cancer and other ailments.
Sun Life does cotinin checks to test if the applicant is a smoker. If the applicant does not declare that he or she is a smoker and something happens to him or her, once the beneficiaries make a claim and the company finds out the applicant did not tell the truth even if the cause of death was not related to smoking, then the claim would be denied or forfeited.
“Be sure to tell the truth because if you don’t and we find out some fraudulence, then the policy will be declared void since the premises are incorrect and there was misrepresentation,” Mantaring stressed.
“The longest period of product being paid is the cheapest, but it doesn’t mean you pay forever. The client can decide when the policy is already fully paid and from there we calculate that is fully paid and then give the benefit due the client,” she added.
For example, a 30-year-old who chooses the regular pay VUL will shell out P22,000, while a 50-year-old will pay P38,000.