Understanding VUL: Protection first, investment second

With more Filipinos becoming financially aware and investment-curious, variable unit-linked (VUL) insurance continues to generate both interest and confusion.

In a recent episode of BusinessWorld B-Side, Ivan Corcuera, Head of Insurance Investments at Sun Life Investment Management and Trust Corporation, clarified how VUL works, when it is appropriate, and why understanding its fundamentals is crucial before investing.

Mr. Corcuera emphasized that there is no one-size-fits-all solution in financial planning. An individual’s needs vary depending on life stage, responsibilities, and goals. A single professional with no dependents may not prioritize life insurance immediately, while a breadwinner supporting a family would likely require substantial protection.

“The financial advisor would identify the client’s financial needs and offer solutions that would fit the needs of that client, depending on the client’s budget. Even one product, one insurance product, can have multiple use cases. One can buy an insurance product as a means to protect their loved ones when something untoward happens to the policyholder,” he said.

A key distinction highlighted in the discussion was the difference between traditional life insurance and VUL. Traditional products are designed for pure protection, offering guaranteed benefits for a defined period or throughout the policyholder’s lifetime. VUL, on the other hand, combines life insurance with an investment component.

“One of the key differences is really the investment component. For a traditional product, it’s pure insurance. If you just need insurance, then this would be the ideal product for you. If you want the best of both worlds, then we have VULs,” Mr. Corcuera explained.

However, Mr. Corcuera underscored that VUL should first and foremost be viewed as a life insurance product, explaining that one buys a VUL because they need protection. Misconceptions arise, he noted, when VUL is marketed primarily as an investment vehicle. Historically, some clients focused on projected returns illustrated in policy proposals, expecting sustained high growth.

“We need to go back to the fundamentals of what a VUL plan is. You buy a VUL because you need life insurance. You need protection first and foremost,” Mr. Corcuera said. “You can think of the investment component as an add-on — a feature that allows the fund value to potentially grow and help pay for insurance charges over time.”

Another topic touched on in the episode is market volatility. Mr. Corcuera expounded that risk and return are positively correlated, as higher potential returns come with higher fluctuations. During downturns, he advises investors to avoid knee-jerk reactions and instead reassess goals and maintain composure.

“I think one very important skillvery important scales for an investor shouldto have would beis keeping their composure. And I would always advise clients and advisors to reassess before doing anything rash. In fact, some of our advisors would actually tell our clients to increase contributions or do what we call top-ups during market downturns to capitalize on lower prices,” he said.

Beyond understanding product features and navigating market fluctuations, Mr. Corcuera stressed that effective financial planning ultimately depends on meaningful conversations between advisors and clients.

“For me, good guidance starts with listening and asking the right questions. A good financial advisor would typically ask: What are your financial goals? What are your priorities? Do you have dependents relying on your income? Are you focused on protection? Do you want wealth accumulation? What capacity do you have to pay premiums?” Mr. Corcuera stressed.

Listen to the full episode here: https://open.spotify.com/episode/5xxS2xsQ4P9z8DB1XTUOLF?si=bMtVFSdGSfSGIiiQJu3PwA 

Spotlight is BusinessWorld’s sponsored section that allows advertisers to amplify their brand and connect with BusinessWorld’s audience by publishing their stories on the BusinessWorld Web site. For more information, send an email to online@bworldonline.com.

Join us on Viber at https://bit.ly/3hv6bLA to get more updates and subscribe to BusinessWorld’s titles and get exclusive content through www.bworld-x.com.