It was almost midnight when I decided to lay down on my bed and had a rest. But typically, before I go to sleep, I often browse on my social media and check out whatever I could find interesting. I kept on fiddling with my phone, seeing funny quotes and memes on my newsfeed. For me, that was my stress reliever after a long day.
But as I was laughing at those silly jokes, I stumbled across the post of a stranger on a page that I follow. That page’s content is about personal finance and saving money strategies. His post caught my attention as he mentioned his trouble with his VUL and his financial advisor. I felt mixed emotions as I read his story. But there was one thing he did that made me feel sorry for him. That is when he said, “I withdrew my VUL."
Before I continue the story of that stranger and disclose the reason why he did that, let’s discuss first what VUL is. There are a lot of people, especially Filipinos, who do not understand completely the nature of VUL. So, let me simplify it here.
Note before you proceed: I am not a Financial Advisor. I am just sharing what I know and understand about VUL. If you want to have a better understanding of VUL, I encourage you to talk about this with a licensed Financial Advisor.
The Variable Universal Life Insurance
The Variable Universal Life Insurance or known as VUL is a type of life insurance that also offers built-in savings within the policy. In simple terms, VUL is a life insurance plus investment.
You can consider VUL as a 2-in-1 financial plan. If you are looking for life insurance, but at the same time you want to earn as well, then you might like to get a VUL. With VUL, you and your beneficiaries will be financially protected through its life insurance policy. And your money will also grow through investments in Mutual Funds.
It is the insurer that will manage the cash component of your VUL. However, you must also keep in mind that in VUL, even though it has cash value with potential growth, it won’t guarantee higher returns than the other investment streams. And within the first few years (can be two to five years), your returns might not cover or offset your premium payments made during those years. This is because you are also paying for the mortality and administrative costs of your life insurance.
In a general sense, VUL gives the insured person peace of mind by transferring his future financial risk to the insurer, with an additional benefit for the insured in the form of fund value. But only a few people understand it. And when they see that their cash fund value is lower than what they pay, they think that they are wasting their money.
And that’s what happened to the stranger I was talking about.
“I withdrew my VUL.”
As I was reading his post, I could feel his regrets about getting a VUL. He didn’t really want a VUL. But he got a policy anyway, believing that he would earn more than the premiums right away. He got the policy without making thorough research about it. He relied only on what his advisor said – in which case, I believe, it’s either his advisor didn’t explain to him all the things he needed to know, or he didn’t pay attention to their meeting during the discussion about VUL.
He got the VUL five years ago and when he recently checked his investment’s fund value, he was completely frustrated. The amount in his fund value is so much lower than the amount he invested in the policy. He called his agent (probably his advisor as well) and he requested to withdraw everything, and he’d like to cancel the policy. All this happened during the pandemic.
He mentioned that he has a healthy lifestyle and he barely gets sick. So, he thought he doesn’t really need VUL as of now. He also said that he was afraid he might lose more money if he would continue it. He is not yet married and still living with his parents. And because of the pandemic, he thought he could use his withdrawn money for additional emergency funds.
Now the question is, did he do the right thing?
First of all, we can never judge his decision. It’s his own money, and he can do whatever he wanted to do with it. Nevertheless, he said that he could use it for additional emergency funds, so canceling it might be better for him.
However, there are only a few points that made me feel sorry for him as I read his post.
1. He doesn’t know his financial goals.
He signed a policy and got life insurance without knowing his financial goals. Life insurance wasn't his priority – he was after the passive income that he could earn in the fund value. If he utterly understands and knows his financial goals, he will not get a VUL in the first place.
2. He doesn’t understand how VUL works, and how life insurance can benefit him and his beneficiaries in the future.
When he got his policy, he had no idea about VUL. In his statement, he probably got enthusiastic when he heard the "investment" in VUL, thinking that this financial plan is just the same as the other investment streams. Little did he know, that the life insurance policy component can benefit him and his family in the future.
3. He lost the chance to enjoy the retirement benefits using his VUL.
Life is uncertain. Even if you can say that you are fit and healthy right now, you can never tell what your future holds. VUL is not just for those unhealthy. Actually, healthy ones can benefit more in VUL than those who are not, because, with this plan, you can prepare for your retirement as well.
Most of the VUL has an age coverage until 60 to 80 years old (or longer). It really depends on how you prepare for your retirement. Some package only has 10-year payment plans, meaning after ten years, you no longer have to worry about your premiums. And you can withdraw your entire funds anytime without waiting until you reach the maximum age limit. You can enjoy your retirement with this benefit.
4. He lost his trust with VUL and other financial plans.
He wasn't well-informed on what he got into. He was frustrated because he thought it was all a trick. Probably his financial advisor or agent had a share with this misunderstanding, as his advisor had an obligation to clarify everything first before giving him a policy. He felt like he was betrayed, and thus losing his trust in any kind of financial plan.
The Bottom Line…
When getting any financial plan, you should always make your own research first. Sometimes, not everything can be addressed in a meeting with a financial advisor. It always comes in handy if before you get financial advice, you know and understand the agenda. Create a list of questions and present them to your advisor. For sure, he will be happy to help and enlighten you.
You should also determine your financial goals. Identifying them will help you build your own roadmap. You have to be specific and realistic with your objectives. Because when you know where to go, you will never get lost on the right path.
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