07/10/2025
Addressing Misconceptions About VUL Policies
A client recently sent me a video where someone harshly criticized Variable Unit-Linked (VUL) insurance policies, even going so far as to label them a "budol" or scam. This raises an important question: Why do so many people feel misled by VUL policies?
First, it’s important to clarify that VUL policies are legitimate financial instruments. They are regulated, licensed, and authorized by the Insurance Commission of the Philippines. As such, they are valid legal contracts—not scams.
The most common complaint about VUL policies stems from misunderstandings surrounding their investment component. VUL is, first and foremost, a life insurance policy, with an investment feature added on. It's crucial to understand this order. The primary purpose is protection; the investment component is a bonus feature—not a guaranteed savings or income tool.
Conflicts and frustrations typically arise from a lack of communication or misunderstanding between clients and their financial advisors. In some cases, the advisor may have failed to clearly explain how the policy works. In others, the client may have simply forgotten or misunderstood the details over time. Either way, these issues can often be resolved through regular policy reviews and transparent conversations about expectations.
Looking back 10 to 15 years ago, many VUL policies delivered excellent returns, driven by a bullish local capital market. Policyholders saw their fund values grow, often exceeding projections. However, since the onset of the pandemic, market performance has stagnated. As of writing, the PSEI remains at levels comparable to 10 years ago, leading to little or no fund growth for policies taken out during this period. Naturally, this has led to disappointment among some policyholders.
In times like these, it becomes the responsibility of the financial advisor to help clients recalibrate and adjust their financial plans based on their current needs and goals. It’s also important to recognize that people go through different life stages, and with those changes come evolving needs and attitudes toward financial products.
There may be cases where a client no longer sees a VUL as aligned with their priorities. While I don’t generally recommend completely surrendering a policy, there may be a need to reallocate resources depending on an individual's evolving goals.
That said, VUL is not a flawed product—nor is it a tool for deception. Like any financial product, its suitability depends on the client’s goals, risk appetite, and stage in life.
For example:
Young professionals can benefit greatly from VUL due to its affordable premiums and comprehensive coverage, often with riders that enhance protection.
Clients interested in legacy building may also find VUL ideal, as many policies offer coverage up to age 88 or 100, along with flexible premium options (like premium holidays).
High-net-worth (HNW) individuals looking for maximum coverage with optimized premium payments may find VUL an efficient solution.
In conclusion, the key to maximizing the value of a VUL policy lies in education, communication, and periodic review. When aligned with the right goals and expectations, VUL remains a powerful and practical tool for financial protection and long-term planning.
