Many financial experts hate the VUL plan and some may even tag it as a scam. If you’re following one of them you might be convinced that it’s really a scam. And I can’t blame you. But don’t get me wrong. This article is not meant to refute their claims or support them. I just had an urge to explain some things that I think are also important in your decision-making. So put down your pen and make sure you read this before you sign your insurance application.
First of all, I’d like you to know that this isn’t written out of hate toward anyone. However, someone triggered me to write this article.
Oh no! It’s not any of those financial experts you’re following. It’s someone I don’t even know.
Not that I hate him. But you’ll know why in a bit.
I Hate VUL It’s A Scam!
A few days ago, I was so in shock to receive a hate comment. Oh well, it’s not my first. Sometimes we have different views and that’s fine. There might be corrections in my post and you’re more than welcome to tell me.
However, the attack was personal, mocking my story of why I get insured.
Like, seriously, am I not allowed to share my story because it’s not what you’re looking for?
Then at the end of his comment, he shared how disappointed he was when he learned about the charges. He felt scammed and thought that every insurance agent is a scammer.
Mind you. I’m not ready to receive hate for something I didn’t even do.
So if you have the same experience or perspective then this is what you should do.
Go to your insurance agent if you have issues. It’s not right to vent your anger on someone who doesn’t know you. If you can’t resolve it then that’s the time to look for someone who can help you.
In his comment, it seems to me that charges weren’t discussed with him. Instantly I can say that both of them are at fault. Firstly, insurance agents must be transparent. Secondly, the clients must do their due diligence.
Thanks to him this post is born.
I hope you’re reading this. And hopefully, it may help you.
But most importantly, I won’t turn a blind eye to the fact that several VUL holders feel the same way. Especially when they have watched videos about BTID like it’s the perfect insurance plan. Now, they will hate it to its core from the charges, insurance company, advisor, name it, they’ll hate it.
Three Sides of the VUL Plan
First things first, I will not make you fall in love with VUL. Because it’s not for everyone. Here’s what I’d like you to know.
Just like what Robert Evans said that there are three sides to every story: your side, my side, and the truth.
So in this much-heated discussion, there are also three sides. These are the views of financial experts, insurance agents, and most importantly the client.
Okay, you have heard, read, and watched about the side of financial gurus/experts.
Now, it’s time to know the side of an insurance agent.
BTID is the BEST Strategy
I hope you’ll agree that many of those who hate VUL will definitely recommend the BTID strategy.
Term insurance is way cheaper and can give higher coverage with fewer charges.
These are just a few things they say about the BTID strategy.
Who doesn’t want cheaper options, right?
You know if I’m just a client and it’s my first time hearing this then I would definitely agree that BTID is the best.
But it’s not. Here’s why.
5 Additional Truths about the BTID
Again, I’d like to emphasize that I agree with the points presented by the financial experts you’re following. But I also believe that there are additional truths you must also know. So here they are.
1. It’s more complex than what you thought
“Do you have BTID plans?” That’s the most common question I get from those who are interested in BTID. And it seems to me that they don’t understand it at all.
In layman’s words, BTID means you buy term insurance and invest on your own. Thus, it’s cheaper because you’ll do it yourself.
Here’s an example to help you visualize what you’re about to do.
Imagine, if you need house repairs, let’s say your kitchen faucet is broken.
You have two options. It’s either you hire a repairman or you fix it on your own.
Of course, if you do it your own it will be cheaper. However, if you don’t know how to do it properly then it might do more harm than good.
Not because others can fix faucets on their own mean that you should. They can tell you it’s cheap. They can tell you it’s doable. And they’re right. But you should not feel bad if you can’t do it now.
You can still get a repairman to fix it in the meantime. Then study or ask someone you know to help you in learning it. So next time it happens you can do it yourself.
Somehow, BTID is the same.
If you know how to manage your investments then go BTID.
If not, go and get professional help. Delegate it to someone who knows better than you, for example, by getting a VUL plan.
Anyways, you still have time to learn how to fix faucets much more to handle your investments.
And by the time that you’re ready, I’m sure you’re not starting from scratch.
2. You will never get away from charges
There’s no such thing as free lunch. When you get term insurance, your premium goes to charges. And you should be okay with it because that’s how term insurance works. That’s why it’s cheap.
But still, several people cannot get a hold of it. They are always like, “You mean even if I paid it for 20 years I won’t get anything in return?”
In the back of my head I would like to tell them, how sure are you that you’ll survive 20 years or even just 10 years? There’s no certainty with that. Of course, I didn’t say that.
Okay, I think I did to my friends haha.
So when you tell them about it they are drawn back as if it was never explained by whoever they’re following. Oh, I’m pretty sure they did.
Basically, term insurance is used for income protection to cover death. Additional benefit like savings means additional cost which will be transferred to the client.
You simply don’t want that if you want to follow the BTID strategy.
Thus, the VUL plan will be priced higher.
In addition, when you invest in other investment vehicles you will still be exposed to charges.
Hence, you cannot really get away from charges.
3. There’s no guarantee that you’ll invest the difference
Let’s say you saw an explainer video about the BTID. In that example, the VUL plan is Php 50,000 per year while it’s only a Php 15,000 annual premium for term insurance.
If you will follow the BTID strategy, you’ll buy term insurance for Php 15,000 and invest the remaining Php35,000 in an investment vehicle of your choice.
In BTID, more funds are allocated to investment in the early years. Thus, it will result in a bigger fund.
The gap between it and the funds of a VUL plan will become significant as time goes by. But let’s just park it for now.
There are two points I would like to stress.
Firstly, would clients really go the extra mile to get VUL and term proposals? Just so they’ll know the difference or the amount they’ll invest.
If yes, I can tell you that most clients will just settle to lower cash out. And that’s totally fine. However, it will again defeat the purpose of the strategy.
Because instead of actually paying the Php 50,000 from the example above, some will just settle for Php20,000 or Php 25,000.
It will result in a lower allocation to investment. Thus, you’ll get lower accumulated funds than getting the VUL plan.
Secondly, it might become spend the difference.
Paying your insurance policy is like settling your electric bill. You need to pay before the grace period ends.
Something you don’t want to happen with your electricity much more with your insurance policy.
However, your investment is not the same. You’re not required to put in additional funds. Thus, giving you an idea to skip it from time to time.
So from investing the difference it might become spending the difference. A total nightmare I must say if not properly done.
4. Ideal vs. Reality
Whenever I watch financial experts on Youtube I notice that they tend to make BTID look very easy to do.
Just to set the record straight, I watch it to keep myself updated. I believe in continuous learning.
I don’t leave hate comments because again I’m not a hater.
So please spare me from hate.
As I always tell my readers, I have term insurance because it’s cheap and gives me bigger coverage.
I just find it as being too ideal.
They will just say that term insurance is cheap so only get term insurance. Then invest your money elsewhere, for example, Pag-ibig MP2.
Once they show figures and illustrations it will add some awe factor. And now viewers are convinced.
But the problem is it’s too sugar-coated. Some factors were not discussed that can also influence your decision.
The reality is they are already experts in their fields. And you might not be on the same level as them.
They have the knowledge that’s why their results are above average.
Sure you can easily get term insurance.
On the other hand, investing is not as easy. But it’s definitely not too hard. There are several online resources to equip you with the right knowledge and mindset.
Just make sure to know how it works before investing or else it will become more of a gamble.
Investing entails knowledge. And it pays the best interest. If you plan to do BTID, do not skip studying. It’s the key determinant of your success.
5. Term insurance or terminated insurance?
You already know that term insurance is cheap. But do you know why it’s cheap? You might tell me that it’s because it only covers death.
In addition, it’s because term insurances are usually terminated or expired before any death claim is made.
In this setup, insurance companies have less risk over term insurances. Thus, they can offer it for a cheaper price tag.
But that’s not the case for whole-life or VUL plan owners.
Because they are built to provide coverage for life. More death claims are paid by the insurance company.
Thus, they’re exposed to higher risk which is why the VUL plan is more on the expensive side.
As an insurance agent for 5 years, I have witnessed this. Most of my clients who availed of term insurance terminated their policies after two years.
And some even terminate it just after a year.
Lastly, as insurance agents, we are encouraged to bring quality business to the company.
Clients that stay are always desirable. If clients terminate their plan in a year it will correspond to a financial loss.
Of course, bringing bad business is not sustainable. It can soon hurt the financial stability of the company. Which, at all costs, we must avoid.
5 Additional Truths about VUL
At this point, you might be thinking that I’m pro-VUL. But let me tell you that I’m not. Actually, I’m a pro-client.
I’ll support you whatever floats your boat.
If you’re invested in this topic, I just think that it’s better to know the bitter truths than the sweet lies.
Okay, just to balance everything, I will also be as straightforward and blunt with my views about VUL.
So here are the 5 additional truths you must know about VUL.
1. Unforeseen advantages of VUL plans
Most insurance agents will say that VUL is a 2-in-1 plan.
And that includes me. While others might even say it’s a 3-in-1 plan.
You know, it’s just a matter of time, it’ll be called the “All-In-One” plan.
But kidding aside, technically, there’s nothing wrong with it.
However, there are several unforeseen advantages of VUL plans that you may not get by doing BTID.
Firstly, the tax advantage.
In VUL, your investment fund will not be subjected to a capital gains tax of 20%. That’s 20% of your gain.
So if your capital is Php 1,000,000 and you earned Php 100,000 as interest. The tax will be Php 20,000 deducted from your earnings.
Thus, the more you earn the higher your taxes.
It doesn’t mean you’re 100% exempted from tax. Because there’s still VAT against the fund management fee.
That’s 12% of the 2% management fee.
Still a huge difference in taxes, right?
In addition, in case you die, your beneficiaries may get the sum assured plus the “investment fund” tax-free.
That’s because your investment fund will form part of your insurance coverage.
Secondly, the waiver on premiums in your VUL plan enables you to save when you cannot produce income.
In BTID, a huge chunk of your money goes to a pure investment vehicle. So what happens when you get disabled?
Your term insurance coverage continues. Provided that you have a waiver of premiums attached to your plan.
But that’s not the case with your investment in BTID.
I guess that’s another reason to diversify by getting a VUL plan.
Thirdly, it gives increasing life insurance coverage.
As mentioned, most VUL plans death benefit is the sum of insurance coverage and investment fund.
So as your investment grows the effective insurance coverage increases accordingly.
2. VUL is not the most expensive insurance after all
I’ve read several forums wherein they would say that VUL is expensive. Compared to term insurance, it surely is.
Some would even say that most insurance agents are only selling it because they want to earn more.
But technically, if they are only after the commission, then it would only make sense to sell the most expensive plan, right?
VUL is not the most expensive type of insurance after all.
Whole life insurance is more expensive. Because it’s a combination of insurance protection and guaranteed savings.
In this plan, savings are guaranteed by the insurer. It means that even a stock market crash will not affect the savings fund.
Thus, for this type of insurance, the insurer takes all the risk. In return, the accumulated savings are usually smaller to limit their exposure to risks.
On the other hand, VUL is a combination of insurance protection and investment fund.
But take note, investment returns in VUL plans are not, or should I say never, guaranteed.
Again, because investment fund is not guaranteed, it simply means that insurance companies are exposed to lesser risk.
So in return, in VUL, the risk associated with the investment fund is transferred to the client.
Hence, VUL is at a more affordable price compared to whole life policies.
Is it bad? Not at all. Remember, in any investment, the risk is always with the investor.
In most cases, a regular pay VUL plan is used in comparing it with BTID.
I think it’s because charges in regular pay VUL are higher compared to a limited pay VUL.
These limited pay VUL plans are the improved version with higher and more sustainable fund accumulation.
3. Fund management fee can be okay too
In VUL plans, the investment part is in the form of pooled funds. It’s somewhat similar to a mutual fund.
And most, if not all, BTID practitioner hates the fund management fees of VUL plans. They recommend investing on your own so you can skip the fees.
It simply means you get more money in your funds. And they’re right.
But it’s only applicable if you know how to do it on your own. It’s not that I’m telling you can’t learn it. Because you obviously can.
However, there’s nothing wrong you delegating the investing part if you must. Let’s say in cases you cannot do it yourself now. But of course, delegating means you have to compensate them.
That’s in the form of fund management fees.
For example, you have more important things to deal with at hand. You might be taking your master’s degree or maybe preparing for a board or bar exam.
While some decided to just focus on what they do best, like in work or business. Well, this is by all means subjective.
Thus, you’re not lazy if you get a VUL plan. It’s just that you have priorities. It might not get you from point A to point B as fast as BTID. But you know that you’re moving rather than not even start investing altogether.
Thus, it’s perfectly okay to get a VUL plan.
After all, it’s an insurance plan. The investment part is just something you can look forward to but should not be the sole reason why you’ll get it.
Lastly, investing doesn’t end in getting a VUL plan. I guess it’s time to change your insurance advisor if they keep on telling you that VUL is an investment plan.
4. This is why you hate your financial advisor
I couldn’t agree more with financial experts hating most of the insurance advisors. Especially those who make VUL look like it’s God’s gift to mankind.
Obviously, it’s not the best plan.
But VUL is not a scam. Just the same views I have with term insurance. For me, it’s not the best plan either.
In reality, the best, or should I say “the right”, plan for you is the one that can help you secure your future and help you achieve your goals. Just the way you like it.
Insurance is not a one size fits all plan.
We have different needs and not because it doesn’t fit yours, means it’s less superior.
I can’t blame you if you hate your advisor. That’s why we keep on telling you to do your due diligence. Please, don’t ever get an insurance plan you don’t understand.
And don’t just ask for proposals, for Pete’s sake. You will miss more information, which is not written in the proposal in the first place.
Financial planning is FREE and can be done online so maximize it.
An insurance plan is for your future and a long-term obligation. So give some time to have a sit-down discussion. On top of it, you can get answers right there and then. Thus, it saves you time.
Lastly, do not get an insurance plan just to help a friend.
Just help your friend in some other ways. Because, in reality, you’re not helping your friend grow by accommodation sales.
You don’t really like the plan to start with. Soon after, you might terminate it which is a total waste of your time and money.
5. Advisors earn through commissions
The ultimate reason why some clients feel that VUL is a scam is the commissions.
It’s one of the common contents of financial experts. Most of them think that it’s all about the commission that’s why insurance agents are pushing VUL plans.
Again, if you read this blog you will understand that it’s not.
Mind you, the commission rate will depend from plan to plan and from company to company. And would you believe that some term insurance plans give a much higher commission rate than a VUL plan?
Because the premium of VUL plans is higher due to added benefit, i.e. investment fund, even if the rate is smaller, the resulting commission will be higher.
At this point, you might be thinking that your advisor took advantage of you by not telling you the commission.
Let me say this, for once and for all, we, insurance agents are not allowed to say the rate or actual commission earned to a client.
We can only say that we earn thru commissions.
So please stop the hate. We are just trying to stay ethical by following the mandate of the Insurance Commission. After all, this is a job.
You know this is just a short explanation.
There’s so much I would like to share about this but it’s getting longer. I’ll just write another article about it and link it here once done.
We can’t discuss this topic without feeling animosity. And it’s kind of sad. Why do we have to spread hate? But setting it aside, one thing is undebatable.
You need life insurance.
I started this article by telling you that this is my view as an insurance agent. Before you type your hate comments please read the whole article first. So we can have a healthy discussion.
Once again, I will not make you fall in love with VUL nor even like it. Just like you, I don’t think VUL is “the almighty” insurance plan. However, term insurance is not the best insurance as well.
What I’m trying to say is that because it’s working for them means it will work with you. It may or may not. At the end of the day, that’s something you have to decide for yourself.
You’ll be the one paying for it not those financial experts nor your insurance agent. So please do your due diligence. Take both sides with a grain of salt.
Of course, the tendency is to always prove their sides.
How do you like your ice cream?
You know, I always compare this topic to ice cream.
Well, aside from I like it to beat the heat. I think it can best describe the different views we have between BTID and VUL.
In my case, I like vanilla ice cream. I just like to enjoy its simplicity. The taste of sweet creamy vanilla. On the contrary, my family prefers anything but vanilla ice cream. Sometimes I don’t understand why.
Basically the same tension between BTID and VUL.
Sometimes, we can’t seem to understand other people. Because we fail to put ourselves in their shoes.
Put it this way.
Some prefer plain and basic term insurance. While some would want extra toppings such as riders and customize their plan with VUL.
Thus, no plan is superior to the other.
Either plan can be right for you.
Writing this ultra-long article makes me feel I deserve some ice cream.
If you want to send some just send the money to my GCash (09177758352).
So here’s the thing.
We have different needs. We have different financial goals. Might have different time frames. We are all different.
Federico is an electronics engineer, financial blogger, insurance agent, and a certified investment solicitor. A multi-awarded financial advisor with clients ranging from lawyers, doctors, engineers, accountants, business owners, company directors, and OFWs to minimum wage earners had sought advice from him in achieving lifetime financial freedom.