A Young Professional's Guide to Variable Unit-Linked Plans

As young professionals, researching sound investment methods is a good way to build and achieve financial security. Before anything, the first step towards building a strong financial nest egg is to pay yourself first. As such, it is very important that we thoroughly understand the benefits and risks of investment products so we can assess if it is something that works with our financial objectives and risk tolerance.

One of the most common forms of investing is by securing a suitable insurance policy. Insurance plans have since evolved from being something that only your family or dependents can benefit from upon your passing. Now, it has become a feasible investment strategy that not only ensures that you and your loved ones are protected but also helps you be financially strong and secure.

Having said that, we are sure that by now, you may have heard of the following products - variable unit-linked plan, non-traditional insurance plans, and unit-linked insurance plans. The question is, do you really know what these are? Just in case you don’t, allow us to clarify these seemingly confusing concepts for you.

Also known as variable unit-linked insurance, the variable universal life (VUL) plan is a type of insurance policy that effectively combines permanent life insurance and investment components into a singular product.

In recent years, VUL plans have become one of the most popular investment products in the market because of the flexibility, as well as the health and financial protection it provides with its policyholders.

Whom is the VUL plan best for? It is ideal for anyone who is curious about the world of insurance and investing but does not exactly know how to proceed. It is also recommended for those who are looking for additional income streams but also wish to have a life insurance policy in place to protect their dependents, as well as their assets.

It is important to familiarize yourself with a VUL’s two important elements in order to be aware of how it can perform. First, compared to a term life insurance policy that has an expiration date, a VUL plan offers lifelong insurance coverage for as long as you make the scheduled premium payments. Second, the plan is variable because the performance of your investments will highly depend on market movements and developments.

Compared to the rigidity of a traditional life insurance plan, a VUL plan offers both living and death benefits, which means that policyholders are given the opportunity to actually enjoy the fruits of their investments.

While placing your money in banking institutions remains to be a safe choice, the purpose of doing so is more for safekeeping than investments, unless you apply for a high-yield savings account or a time deposit.

As a young professional whose goal is to grow one’s financial assets, investing in a VUL plan can prove to be a wise decision, as your money will be handled and invested by professional fund managers. A portion of your premium payments can be invested in one, or a combination of, investment products, such as stocks, bonds, and options. With your investments in expert hands, the earning potential of your VUL plan can be raised significantly.

Before securing your VUL plan, make sure to check the performance history of your chosen fund to get a good view of your fund's earning potential. However, do manage your expectations, and be ready if returns are not consistently profitable, as investing comes along with its own set of risks.

One of the special features of a VUL plan is its liquidity. VUL plans can give you, as the policyholder, the option to withdraw a portion of the investment component of the plan, and allow you to make use of these monetary benefits during your lifetime. It is important to note that the policyholder must have a PHP 10,000 maintaining balance before making any withdrawal(s), and that, depending on the policy that you avail of, these withdrawals may come with a corresponding withdrawal charge.

The bigger premium payments that you make, the more substantial your investment will grow, which you can then use for personal use or additional investments. Withdrawals from a VUL plan is free of tax and interest rates.

One of the special features of a VUL plan is its liquidity. VUL plans can give you, as the policyholder, the option to withdraw a portion of the investment component of the plan, and allow you to make use of these monetary benefits during your lifetime. It is important to note that the policyholder must have a PHP 10,000 maintaining balance before making any withdrawal(s), and that, depending on the policy that you avail of, these withdrawals may come with a corresponding withdrawal charge.

The bigger premium payments that you make, the more substantial your equity will grow, which you can then use for personal use or additional investments.

Similarly, a VUL plan assures policyholders that their nominated dependents will be well taken care of upon their passing. Life insurance proceeds are tax-free if the beneficiary is designated as irrevocable.

An emergency fund must be equivalent to at least three to six months of your monthly living expenses. As young professionals, building an emergency fund may be the last thing on your minds, especially since you are only starting to eke out your path in the world.

It is never too late or too early to plan for an emergency fund, as emergencies are oftentimes sudden and unexpected. As such, taking out a VUL plan can be your way of forcing yourself to save, thanks to the monthly premium payments that you make.

It can be difficult and nerve-wracking for a new investor to know that the success - or downfall – of his investments lie in his hands. Taking out a VUL plan with a credible and high-performing insurance firm takes away the guesswork, and can give you a certain degree of peace of mind, knowing that your investments are being managed by seasoned investors.

Aside from providing you with regular updates regarding your VUL plan, legitimate insurance companies also offer reliable customer service channels so that you can easily reach out to them via telephone, email, or chat services for any concerns.

So, you have come to realize that securing a VUL plan is a wise investment decision - good for you! The next step, then, is to look at the fine print of your VUL policy, and familiarize yourself with the following details. While a licensed financial advisor or agent will also be able to explain these to you, having a working knowledge of the components of a VUL plan can help you have a more productive and collaborative discussion with him/her.

• Maturity Benefits: The maturity benefit is a lump-sum amount of money that your insurance company needs to pay you once your VUL plan matures. This means that if you have a 15-year term on your insurance policy, you will only receive your payout once these 15 years are up.
• The maturity benefit stated in your contract is a pre-determined figure of what you will receive. It normally includes the premium payments that you have made during the entirety of your insurance term plus earnings that you may have made from your investment fund contributions.
• It would be best to ask your financial advisor or agent how your maturity benefit will be computed so that you can have an idea of how much you stand to receive upon the maturity of your policy.
• Now, in the event that the policyholder passes prior to the maturity of his/her policy, his/her nominated beneficiaries shall be given Death Benefits instead.
• Premium Payments: The insurance premium is the amount of money an individual pays for an insurance policy. By paying your premiums religiously, you keep your VUL plan in force, honored, and valid.
• Be sure to take note of the length of time you are required to pay your premiums, the procedures, as well as the terms of payment. VUL plans can be single-pay or regular-pay, with any amount that you pay aside from your premium considered as an additional investment or top-up. Nonetheless, it would be best to speak with your financial advisor or agent for more guidance.
• Insurance Coverage: Insurance coverage is the amount of risk or liability that is extended by an insurance company for an individual or business entity through insurance services. This pertains to the benefit you will get to have you financially protected, and is issued or paid by the insurer to the policyholder and/or his beneficiaries in the event of unforeseen incidents such as hospitalization, accidents, and critical illnesses.
• Ideally, your life insurance coverage should be equivalent to 10 to 15 times your income so that you and your loved ones can receive ample financial coverage. However, you can also check with your financial advisor or agent for their recommendations, which they would base on your financial goals and circumstances.
• Death Benefit: A death benefit is a non-taxable payout that an insurance company gives to a policyholder’s nominated beneficiaries upon his/her passing. While no one wants to think about death, this feature is especially helpful to those who still have young children in the family. Even if it can be uncomfortable, it is good practice to check with your financial advisor or agent on the payment terms and timetable that the insurance company observes when paying out death benefits.

There’s a saying in finance that when you buy something, you buy it with time. Perhaps, time is the currency you use to earn money. However, time and youth are fleeting, so you should strive to make the best out of it. Instead of placing your hard-earned money in purchases and investments where it won’t grow, put it with a strong financial partner that is highly experienced and is genuine in their mission in helping people achieve their financial objectives, like Allianz PNB Life.

Allianz PNB Life, which started its operations in 2016, is one of the Philippines’ biggest life insurance companies in terms of premium income. Aside from offering a wide array of health, life and traditional life products, the company is determined to help every Filipino family meet their respective financial planning, wealth accumulation, and well-being aspirations.

For more information about Allianz PNB Life’s Variable Universal Life Plans, visit our Solutions Page today.