What exactly is a single pay VUL?
VUL plans, just like other insurance plans, come in many variants. Premiums can be paid regularly. However, you might find out that it would take years or until a certain age for premiums to be fully paid.
This article is going to discuss the details in getting a single pay VULs, which are plans that are considered paid with a payment of a single premium, offered by insurance companies in the Philippines.
What is a single-pay variable universal life (VUL) plan?
Variable universal life or VUL is a type of policy where one can get insurance and open an investment managed fund at the same time. It is offered to people who would want to get insured and grow their savings.
The discussion is divided into two, the insurance and investment sections.
The insurance component of VULs
Single-pay VUL versus Regular-pay VUL
Generally, VULs can either be regular-pay or single-pay. A regular pay VUL means just that, it requires consistent payment of premium usually lasting for years. A single pay VUL, on the other hand, can be considered fully paid with just one payment.
Single-pay plans usually require high minimum premium. A quick glance of the policies that are offered by major insurers reveal that the lowest, and the only one, is at ₱10,000 (Goal Getter from Philippine AXA Life Insurance Corp). Most of them, however, require at least ₱50,000 and can go up as high as ₱5 million.
In some plans, the premium can be paid in Philippine peso or US dollars.
Through the insurance component, the policy works by paying out cash benefit to beneficiaries on the untimely death of the insured person. The Zenith Med from CocoLife can be quite different in this respect. It is actually a VUL with an HMO (health maintenance organization) component.
How is the cash benefit calculated? The cash benefit is whichever is the higher amount between the sum insured and the account value.
How is sum insured determined? It depends on the specific plan. A quick survey of the products available in the market shows that it can either be 125% or 130% of the premium. Thus, if the premium is ₱100,000 the sum insured is ₱125,000.
But there is also a chance the cash benefit can be higher than the sum insured. As stated above, the account value of the investment part of the plan can also play a role as well. This will be covered in a later section.
Most single-pay VULs are whole life plans. Some insurers offer plans with guaranteed issue, having no medical exams required (although they might ask that you submit some documents relating to your health status.) This varies from one plan to another.
In addition, you can include insurance riders such as a term insurance, critical illness, accident insurance, income replacement such as cash benefit on days of hospital admission due to accident, etc. They expand the coverage on top of the life insurance that comes with the plan, and in turn they also increase your premium.
The investment component of VULs
Each of the above mentioned funds have their own pros and cons. They are also tailored to different types of investors depending on tolerance of and reaction to risks, as well as their goal on how much potential income they are expecting.
There are also other types of funds available. For instance, people can invest into peso- or dollar-denominated and local or foreign investments.
Additionally, a few investment funds may be exclusive to particular single-pay VULs. That means, you might have limited options of the fund to put your money into depending on the kind of policy that you purchase.
If you’d like to put more into the fund, you can do so. Such additional investment is called a top-up. The top-up may be subject to applicable charges.
Say that you paid a policy for a ₱100K. And then come December you choose to invest ₱10K from your Christmas bonus, so your ₱10K becomes a top-up to your plan.
The Account Value, also called Fund Value, of a single-pay VUL is determined by the premium, top-ups, and charges. At the start of the plan, it is computed as whatever amount that remains from the premium minus all charges.
As an illustration, let’s say ₱100K premium was paid and the total charge is ₱5,000. The Account Value, that is the money put into investing, is only ₱95K. (This is an example only, and it does not represent any real plan from any insurers or an actual plan from any policy-holders.)
The same is true with top-ups. Following the example above, a top-up of ₱10K may be subject to a charge of ₱500. Thus, the money that is put into investing is ₱9,500.
On top of that, there may be other charges that will be paid annually.
Once the premium is invested, then its value might increase or decrease depending on the return of the chosen fund. If the chosen fund increases, then the Account Value increases accordingly. The opposite happens when the chosen fund’s net asset value decreases, as the Account Value decreases accordingly as well.
Is single-pay VULs earn more than deposit rates?
The short answer is, it depends.
Most of the websites, blogs, and other materials claim that what you earn from single-pay VULs can be higher than the rates given by bank accounts. However, bear in mind, the returns are not guaranteed. And capital loss is a possibility. That is, you might see the amount you put in decrease in value.
Generally, funds into bond and money market have low risks but also modest returns.
Funds into equities and index are for aggressive investors who are looking for high potential return and are prepared to take on some level of risks. The balanced fund is a mix of both bond/money market and equities, so it can be suitable for people who are into moderate risks and returns.
It is also important to talk about the charges. Why? The sum insured as described above is straightforward. It is simply 25% or 30% higher than the paid premium.
On the other hand, the investment part of the plan starts with the amount left from the paid premium minus a few of the applicable charges. A few of the the charges are to be take off from the account or imputed into the net asset value of the fund on an annual basis.
Here are some of the several charges that may be incurred. A quick note: not all policies have all of the charges. See the terms and conditions of the policy for more details.
- Premium charge. It is a fee charged on the first payment and succeeding top-ups upfront. Not much details on the purpose of this charge could be culled at the time of this writing.
- Administrative charge. As the name suggests, it is paid to the insurer for managing the policy.
- Fund management charge. This annual fee is paid for the expense in managing the chosen investment fund.
- Surrender charge. The surrender charge is incurred when the policy is closed and entire fund withdrawn within a sort of “lock-in” period. Some policies 5 years.
- Partial withdrawal fee. While surrender charge is levied when the policy is terminated, the partial withdrawal fee is incurred when a portion of the fund is redeemed within the lock-in period.
- Fund switching or fund allocation fee. The fee is charged when money from one fund is transferred to another. The first two switches are generally free, so the fee applies when there are two switches done in a year.
Fund value, sum insured, and life insurance benefit
The benefit given to beneficiaries on the unexpected demise of the insured person is whichever is higher between the sum insured and fund value.
The sum insured is 125% of the paid premium. Thus, the sum insured becomes ₱125K. And because it is higher than the fund value at the start of the plan, then that is also equal to the life insurance benefit.
The moment the fund value exceeds the sum insured, then whatever is the amount of the fund value becomes the life insurance benefit.
The scenario in the table below is only for illustration purposes. This does not relate to an actual policy.
|Sum insured||Fund value||Life insurance benefit|
Switching, withdrawal, termination
Can you switch funds? Yes. Most plans allow up to two switches yearly. Charges may be levied when you make more than two switches.
A switch occurs when you are transferring from one fund to another. For example, you may move from an equities fund to a bond fund. Or you may want to allocate a portion of your money from one fund to several funds.
Can you partially withdraw money from your funds? Yes. However, you may be subject to charges if you do so within the lock-in period. One other thing is that the VUL plan might be terminated when the fund value goes to zero, which can be a result to either termination of the plan or accumulation of the charges that deplete the fund value.
Can you close the account? Yes. However, you may be subject to the surrender charge and other applicable charges when the account is closed within the lock-in period.There are a few plans that allow you to close the account within 15 days since the start of the plan where the total Fund Value plus all the charges are returned to you.
Some policies may give loyalty bonus. Such loyalty bonus is given to your account after meeting specific milestones, such as having an active account for a number of years.
One detail that is important is the issue age. The issue age is the range of ages that they can be sold to. The insured person must not be too young nor too old, although generally for a select number of products children as well as those who are 70 years and older can still apply.
Moreover, the cover age describes the span of time that the insurance can be enforced. Too old and it is considered “surrendered”, which mean it is terminated involuntarily and the proceeds are issued.
Benefits of single-pay VULs?
So what are the advantages?
- Mix of insurance and investment. The plan combines getting insured and having your money invested in a way that you can expect returns all into one.
- Convenience. There can be less hassle. The policy-holder only has to deal with one company in managing the policy. They can reach out to an agent or company rep to be informed on the status of the policy, update a few details, etc.
- Ease in transferring asset. They can be suitable for people who want the proceeds of investments be transferred to their beneficiaries. Bank deposits, stocks, and properties of deceased individuals are subject to estate laws before they can be assigned to the heirs. With single pay VULs, the proceeds of the life insurance component are paid to the beneficiaries.
- Can be tax-free. When the insured person passes away, the life insurance benefit can be free from any estate taxes particularly when it is given to an irrevocable beneficiary.
- Passive income. The investment component can bring in passive income. The chosen fund may be able to perform better than inflation, beat deposit rates, etc.
- One premium. The plan requires single payment as opposed to payments staggered throughout the years.
- High approval rate. There is a high chance of getting the policy approved. A few may even allow guaranteed issue.
- Expand coverage. You can add insurance riders to more get areas of life insured.
Disadvantages of single pay VULs
So what are the cons when purchasing single variants of the VULs?
- Depleted fund value and account closure. There’s a possibility the policy can be terminated because of depleted fund value. It can be a result of withdrawals matched by poor fund performance and piling up of charges. In this particular, extreme scenario, the fund value might reach zero, closing the policy. Hence, a top-up may be required to keep the policy going.
- Fees. The general issue with VULs, and specifically with single pay variants, is the number and the amount of charges. They can be one-time, recurring, and/or on an annual basis. A few of them are charged as a percentage of the premium and the fund value, so they can chip away the capital and potential returns of the investment.
- Sizeable initial premium. The starting required payment may discourage many to purchase the policy.
- Returns are not guaranteed. The potential gains from the investment component are not guaranteed. They vary according to the corresponding gains of the chosen fund at any given time. Thus, they may at times not meet the expectations of the policy-holder, and might even be lower than deposit rates.
- Capital loss is possible. And because the returns are not guaranteed, capital loss is a possibility. The fund value might fall below whatever was the result of the premium minus charges established at the start of the plan. For those who are investing for the first time or who are not ready to deal with risks, it can be jarring and push them into an early closure.
- Lock in period. Once you put your money in, that may be subject to a length of time when withdrawal or closure will incur additional charges. That would further lessen the amount given to you by the insurer.
- Insurance component is small. Once the fund value matches or exceeds the sum insured, you are essentially paying yourself insurance.
- Adding insurance riders leads to increase in premium. More coverage means more required payment.
What is the alternative to single pay VULs?
If your only purpose is to invest, you might want to consider buying exchange traded funds, mutual fund shares, UITF, PERA, real estate investment trust funds, preferred shares, or stocks. Other means of passive income includes dividend-paying shares, Pag-ibig MP2, SSS Flexi Fund or SSS PESO Fund. They can significantly reduce the cost of investing compared to single pay VULs.
Meanwhile, if your only purpose is to buy insurance, you may be better off with term insurance plans. They are renewable, short-term policies that are relatively cheaper and can provide maximum coverage for a given price.
Single-pay VULs in the Philippines
Below are the single pay VULs that are available. The table states the name of the plan, the Company or name of the insurer, the initial premium required, and other details of the plan.
|Maximal Power||Allianz PNB Life Insurance, lnc.||₱1 Million or $20,000||Issue age: 0 – 70|
Cover age: until age 85
|Optimal Power||Allianz PNB Life Insurance, lnc.||₱100K or $2,000||Issue age: 0 – 70|
Cover age: until age 85
|Invest Peso Max||BPI Philam Life Assurance Corp., Inc||Issue age: 0 – 75|
Cover age: whole life
|Invest Dollar Max||BPI Philam Life Assurance Corp., Inc||Issue age: 0 – 75|
Cover age: whole life
Details: Dollar-denominated plan
|Preferred Life Plus||BPI Philam Life Assurance Corp., Inc||Issue age: 0 – 75|
Cover age: whole life
|Prosperity Plus||Etiqa Philippines||Issue age: 0 to 70|
|Prosperity Tiger||Etiqa Philippines||Issue age: 0 to 70|
|1st Investment Peso Max||First Life Financial Company, lnc.||₱100,000||Issue age: 0 – 70|
Cover age: until age 99
Details: Accident insurance
|1st Investment Dollar Max||First Life Financial Company, lnc.||$2,000||Issue age: 0 – 70|
Cover age: until age 99
Details: Accident insurance
|All Set / All Set Higher||FWD Life Insurance Corp.||₱100K / ₱1 Million or $20K (All Set Higher)||Cover age: until age 100|
|Dollar Solid Fund Builder||Insular Life Assce. Co., Ltd., The|
|DOLLAR VARIABLE RETURNS ASSET||Insular Life Assce. Co., Ltd., The|
|SOLID FUND BUILDER||Insular Life Assce. Co., Ltd., The||₱100,000|
|Affluence Max Elite||Manufacturers Life Ins. Co. (Phils.), Inc., The|
|Affluence Max Gold||Manufacturers Life Ins. Co. (Phils.), Inc., The|
|Platinum Invest Elite||Manulife Chinabank Life Assce. Corp.|
|MCBL Enrich Max||Manulife Chinabank Life Assce. Corp.|
|Money Tree Elite||Philippine American Life & Gen. Ins. Co.||₱1 Million||Issue age: 0 – 75|
Cover age: until age 100 years old
|Money Tree||Philippine American Life & Gen. Ins. Co.||₱125,000||Issue age: 0 – 70|
Cover age: until 100 years old
|Goal Getter||Philippine AXA Life Insurance Corp.||₱10,000||Issue age: 20 – 60 years old|
|Asset Master||Philippine AXA Life Insurance Corp.||₱100K, ₱1 Million, ₱5 Million / $2K, $20K, $100K|
|SIBOL||Philippine Life Financial Assce. Corp.||₱50,000|
|Embrace||Pioneer Life lnc.||₱50,000 / $1,000||Issue age: 14 days (insured), 18 years (payor) – 75|
|Elite||Pioneer Life lnc.||₱500,000||Issue age: 14 days (insured), 18 years (payor) – 75|
|PRULink Investor Account Plus||Pru Life Insurance Corp. of U.K.||₱100,000||Issue age: 0 – 70 (insured), 18 – 99 (payor)|
Cover age: until age 100 years old
|PRUMillionaire||Pru Life Insurance Corp. of U.K.||₱1 Million||Issue age: 0 – 70 (insured), 18 – 99 (payor)|
Cover age: until age 100 years old
|Sun FlexiLink1||Sun Life of Canada (Philippines), Inc.|
|Sun FlexiDollar1||Sun Life of Canada (Philippines), Inc.|
|Sun MaxiLink One||Sun Life of Canada (Philippines), Inc.|
|Sun MaxiLink Dollar One||Sun Life of Canada (Philippines), Inc.|
|Sun Grepa Power Builder Dollar 1||SunLife Grepa Financial, Inc.||Cover age: until age 88|
|Sun Grepa Power Builder 1||SunLife Grepa Financial, Inc.||Cover age: until age 88|
|Sun Grepa Global Asset Builder||SunLife Grepa Financial, Inc.||Coverage: 7 years|
|Sun Grepa Peso Asset Builder||SunLife Grepa Financial, Inc.||Coverage: 7 years|
Details: Annual income pay-out
|Zenith Med||United Coconut Planters Life Assce. Corp.||Issue age: 1 – 70|
Cover age: until age 100
How do you buy a single pay VUL?
Is single pay VUL the right one for you?
Single pay VULs are suitable for people with considerable savings, who are ready to absorb the fees, and who would want a way to transfer their assets to their beneficiaries when they pass away.
How do you purchase a single pay VUL variant?
Most major insurers offer them. You can always see what’s available in the market by going online. The table above can be used as a guide when you are shopping around.
The easiest way is to reach out an insurance agent. The agent can explain the details of their offers, as well as let you find out your suitability by determining your insurance needs. You may also want to know more about the investment funds that are appropriate for you based on your risk profile, expected potential income, reaction to capital loss, etc.
Check the terms and conditions of the offers that you are interested in. See what their application requirements are such as documents, health status, guaranteed issue, etc. Other details that are crucial too are issue age, cover age, the nature of the insurance coverage, qualifications for beneficiaries, etc.
Then you can prepare the premium. For substantial amount, see what payment method that is convenient for you. Some companies accept checks or bank deposit.
Wait for the approval by the insurer. It usually takes several days. If it is denied, they will let you know as soon as possible and you may want to try other providers.
If it is approved, then ensure that you have a copy of the contract. Keep it in a safe environment where it can be accessible by you or your beneficiary when the time comes that it is needed.Tags