06/06/2025
“PAGKA-60 MO, MAY ₱XX MILLION KA PA NA PANG-RETIREMENT FUND FROM THIS POLICY”
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You’ll never hear me say this, and here’s why:
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It is not fully safe or ethically sound to market the projected fund value of a Variable Universal Life (VUL) insurance policy as a retirement fund, without clearly disclosing its primary function and associated risks—especially the increasing cost of insurance (COI) as the insured ages.
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Here’s a breakdown of why:
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🔍 Key Issues:
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1. Primary Purpose of VUL:
• A VUL is first and foremost life insurance, not an investment or retirement product.
• The fund value is meant to help fund or pay the increasing cost of the insurance as the policyholder ages—not primarily to be withdrawn as retirement income in the future.
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2. Rising Charges Over Time:
• COI increases dramatically in the policyholder’s 50s, 60s, and beyond.
• If the fund value isn’t sufficient to cover COI, the policy can lapse unless premiums are increased.
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3. Projection vs. Reality:
• Projected fund values are based on illustrated investment returns, which are not guaranteed.
• Poor market performance or incorrect assumptions about premium payments can cause the policy to underperform.
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4. Misleading Marketing Risk:
• Marketing the fund value as a “retirement fund” can mislead consumers, especially if it obscures the dual purpose of the policy and the risk of lapse.
• Regulators in the US (e.g. FINRA, NAIC) have flagged this kind of practice as a compliance risk if not appropriately explained. Ewan ko lang dito sa Insurance Commission sa Pinas.
✅ Responsible Marketing Requires:
• Clear Disclosure:
• Explain that the primary purpose of the policy is life insurance, not retirement savings.
• Clearly show that investment performance is not guaranteed.
• Emphasize that COI will rise substantially with age, affecting policy sustainability.
• Stress-Tested Illustrations:
• Provide projections based on conservative return assumptions.
• Include worst-case or low-return scenarios to show policyholder risks.
• Explain Withdrawal Risk:
• Taking withdrawals from the fund value may cause the policy to lapse if the remaining fund value can’t support the COI.
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✅ When It Can Be Appropriately Used in Retirement Planning:
• If marketed as part of a broader plan, with full disclosure of:
• The life insurance component.
• The conditional nature of fund value availability.
• Minimal partial withdrawal is the most one can do if taking out cash from the plan.
• The need for premium discipline and monitoring of fund performance.
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🔒 Bottom Line:
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It is misleading and potentially non-compliant to market a VUL policy as a retirement fund without making the limitations, risks, and primary insurance purpose abundantly clear.
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While VULs can have a role in retirement planning for certain clients, clarity and transparency are essential to avoid client harm and future trouble.
