Here is SunLife's reply to reader Chris' questions about his VUL product;
Dear Chris, As mentioned, VULs are products that have an insurance and an investment component. It's a flexible product wherein your money works harder because you are covered with life insurance and at the same time, a portion of your money is invested in potentially high-yielding instruments that is accessible to you. In your case, an allocation of your insurance premium is invested in the Sun FlexiLink Equity Fund. The Sun FlexiLink Equity Fund is a basket of blue-chip securities (top equity holdings as of Jan '09 include: PLDT, BPI, Globe Telecom, Ayala Corp, Ayala Land to name a few) that are prone to market fluctuations and by itself more risky than the other funds available under Sun Flexilink such as Sun Flexilink Bond Fund or Sun Flexilink Money Market Fund. We must remember that the valuation of these funds is done on a daily basis. Given the current global economic conditions, the values of the stocks in the Sun Flexilink Equity Fund portfolio have dropped resulting to the lower account value of your VUL policy. The drop in the account value of your policy is in no way due to any alleged misadventures of Sun Life's fund managers, it is merely a function of the market conditions as evidenced in newspaper headlines. Nonetheless, rest assured that Sun Life's fund managers are doing whatever they can given the uncertain environment and have pared down losses by investing in liquid and short-term instruments and holding on to cash to seize market opportunities. As for your insurance coverage, the premium for this (or the insurance charge) is deducted monthly from your account value through the cancellation of units. Since the account value of your VUL policy is lower than its value a year ago (due to the decline in the net asset value per share of the Sun Flexilink Equity Fund), more units have to be canceled to cover for the insurance charge (which is actually a fixed amount monthly). If the account value of your VUL policy is not sufficient to cover for the insurance charge, you will be asked to pay additional premium to keep your policy in-force. The benefit of keeping your policy in-force is that, regardless of market conditions or how your chosen fund is doing, you are guaranteed to be covered with life insurance equal to 5x your regular premium. It also affords you the opportunity to invest in blue-chip securities, high-grade government bonds and other instruments that are otherwise accessible only to investors with a large sum of money. VULs are long-term protection and savings instruments so, stay the course and keep the faith. Continue to pay your insurance premiums as the benefits of VUL as life insurance and forced savings far outweigh the disadvantages. If you are concerned with the decreasing account value of your VUL policy, you may ask your Sun Life agent to switch your investments to a less volatile fund - Sun Flexilink Money Market Fund or Sun Flexilink Bond Fund. When the market begins to pick up, you can then switch back to the Sun Flexilink Equity Fund. If you have any more concerns, please feel free to contact us at 849-9888 or send us an email at phil-marketing@sunlife.com.
I was also offered that product a year ago but I opted out of it as I already have 2 life insurance policies with them with endowment benefits. I only invested my money in their mutual funds as that's the only thing that was explained to me in detail.
Very well said and informative. Some of those who have faith in VULs not only stay the course but also "double-up" when the market is down. They make top-up/s if the product allows or if not, buy a single-premium VUL. They believe in bring down the average cost per share of their investment.
Why don't you just buy the so called "blue chip " stocks yourself? Why let Sunlife earn commissions off your money?
you only mentioned about sun flexilink equity fund and money market fund.
what about sun flexilink balance fund?
If I understand it correctly, then VUL is a smart business. I assume that the premium as well as the periodic allocation to the equity fund ( for example ) are fixed.
In a bull market the capital gain in NAV of the equity fund will pay for the premia. In a bear market, since the NAV is falling, there wouldn't be enough to pay for the premia so the policyholder will have to shoulder the difference or the entire premium amount.
For the issuer of the policy ( in this case Sunlife ), it is assured of a steady flow of cash into its affiliate business ( the mutual fund ) because the policyholder is committed to his policy payments, otherwise the policy will not be in-force. This is important in a bear market because it balances the redemptions. Consider also that the company earns a fixed percentage amount ( management fee ) of total value of assets under management. This assumes a sufficient number of VUL policies linked to an equity fund ( or any other fund ). Other mutual funds don't seem to have this steady base of cash flow.
On the other hand, in a bull market, the capital gain still flows back to Sunlife, as payment for the premium. A percentage of the aggregate premia from all the VUL policies will then be re-invested by Sunlife in say, government bonds, T-bills, or even equities. I think the compounded earnings would be substantial vis-a-vis the policy payout.
"The drop in the account value of your policy is in no way due to any alleged misadventures of Sun Life’s fund managers, it is merely a function of the market conditions "
Who wrote this reply from Sunlife? The stmt above is really a stone cold stunner if you ask me.. I bet these peeps are congratulating themselves when the market is up.. tapos blame the market when the fund is down. sinong inuuto mo!? hahaha
Chris, Eugene, good luck on your costs. Sunlife's exorbitant annual fees will eat up your portfolio.
Biggest fault in Sunlife VUL design: "the premium for this is deducted monthly from your account value through the cancellation of units."
Suppose insurance fee is P 5000 / yr and 'x' balance in ur equity fund. If market doubles x = 2500 will be enough. But if market halves x = 10000, doble tuloy ang 'premium' mo.
And Chris pays the price coz Sunlife mixed up insurance and investment, and w/ markets down Sunlife is punishing Chris via 'forced realized losses' on his equity funds, just to maintain the insurance! Awful design, I'm sorry to say, and I expected better from RP's #2 insurer.
Chris could have just kept insurance and investments separate. Term insurance paid out-of-pocket (and not w/ equity fund units) plus Sunlife equity mutual funds paid for separately. This way you avoid huge fees as well as the design flaw cited above.
Okay, this also means agents are paid less on term plans. But ironically, Chris paid agent well but agent still didn't act in Chris' best interests.
Lesson: just stick with plain term and invest the difference yourself. If only Chris did this (or if only Sunlife designed their VUL better) he won't be ranting over his VUL here at Moneysmarts!
thank you sunlife for replying to the inquiry..... i already have a clear picture.....
@ melvin
Your explanation makes me want to invest directly in SLF stock and not in SLF's VUL. ^_^
@ hachiko
some people fire, fire, fire then aim. i guess this method is good for some areas but not in making investments.
on a different note, i do understand the SLF agent.. he is not a financial advisor but rather a salesman.. he doesn't need to look out for Chris' interest..
on the good side naman, this VUL product contributes to the liquidity of our PSE market.. =D
How bout other Life Insurance's VUL Products like Phil AXA's honeypot, Manulifes VUL and the others? How do they work? Any idea?
I think most VULs have this design, am i right?
to hachiko,
It doesnt matter kung number of units ang tatanggalin. It still translates to the same fixed amount. Kahit pa actual amount ang usapan, pareho lang po yun. Ang premium rate sa pagkaka alam ko is a fixed amount, i dont think di naman sya pwedeng fixed number of units per month kasi iba iba yung value ng per unit per day.
to acn,
may fees talaga yun due to the insurance portion of the vul. Also, in analyzing the performance of investment managers, compare mo yung change ng value ng actual market sa change ng value investment portfolio ng isang company. Most life insurers ay na cushion nila ang impact ng crisis. Meaning kung bumaba ang market ng say 20%, yung mga big insurance companies bumaba lang sila ng 10%. Kung takot ka sa ganitong fluctuations dapat sa bangko nalang pera mo. In my opinion, magagaling ang investment managers ng insurance companies kasi very strict ang regulation sa kanila ng Insurance Commission. Yung Pre-need pumalpak kasi SEC ang nag handle at di naman sila expert.
Although I agree with everybody na kelangan well informed ang customers sa pagbili ng investment products. Di dapat sa equity ang fund ni Chris if he cannot handle ang ganitong fluctuations. Also dapat ngayon bumili ang tao ng investment products at di nung peak nya nung 2007.
I also have a VUL with SunLife. What really ticked me off was the 85% premium charge on my first year of payment. Imagine, they took away 21K+ out of the 25K+ I invested. And worse, there's a monthly premium charge too.
To all bloggers and consumers:
Please don't mix life insurance and investment. Do yourselves a big, big favor by avoiding this type of insurance product.
Keep it simple. Buy term insurance a least 5 times your annual income,( preferably 10 times), depending on how many dependents you have. Invest regularly to a good mutual fund company. You can build your own portfolio compose of blue chips company listed on the PSE index., i.e., BPI, ABS/CBN, San Miguel, etc.
Again, don't buy VUL. avoid headaches.
ASk your insurance agent if they have VUL or even whole life policy nowadays. If they do, they are not smart consumer.
I hate to be blunt, but I must to drive my point.
there are advantages in getting a VUL policy versus directly investing in the stock market or buying government or corporate bonds i.e. diversification for only a small amount of money - di ba nga, don't put your eggs in one basket?, professional fund management, chaka may insurance na rin for a small premium.
plus, kagaya na nga ng nasabi nung isa nagcomment dahil sa regular ka naglalagay, you get to do peso-cost averaging to minimize losses.
ang alam ko lahat ng vul ngayon ganito ang design. hindi lang talaga maganda ang market ngayon kaya nagbabaan ang mga values. but yes, in a bull market, you'll get to enjoy the gains naman that an otherwise life insurance policy cannot give. kasi kapag basta insurance lang, kung ano yung guaranteed cash benefit na nakalagay sa contract mo, yun na yun maganda man ang market or hindi. whereas sa vul, you get to reap the potential benefits of a bull market.
hindi lang talaga sha for the faint of heart, kung risk averse ka, vul is not for you.
@stan,
i think i agree that "It doesnt matter kung number of units ang tatanggalin" because the monthly charges are fixed.
whether i have
10 shares each at P100 = 1000
or
10 shares each at P50 = 500 (which is the time where my shares have lower market value)
and i have a monthly charge of P200, i will be left with
8 shares each at 100 = 800
or
6 shares each at 50 = 300
no problem with the value of my investements....is this correct?
IF this is indeed correct, ang question ko is should i just have paid my monthly charge with P200 cash instead of with my shares? i was thinking i can't recover the lost units by buying it with the same P200 amount because this would then be subject again to premium charges.
@ acn
i have to really agree with your wisdom, boss acn...... i just restrained myself to replying what you said so eloquently..... it gives away your age...hehheheheeh...
i am sure investing in sunlife the stock itself will be more fruitful.....
@ hachiko
exactly what i am driving at the past posts.... i can stomach fluctuations.... but i am forced monthly to liquidate VUL units at the low point of NAV.... and here's the kicker, now that the NAV units are low and i can buy VUL units cheaper.... i asked if i can add to my VUL units..... sure, why not daw..... but i am to be charge 5% fee for the "top-up"
I also have SunLife's Flexilink VUL, and the investment aspect is divided between Balanced and Equity Funds (the former takes up about 75% and the latter 25%). It's true the returns nowadays will leave you cussing, but fortunately I'm in it for the long haul. Medyo bata pa naman ako so I think I can still stomach the market's roller coaster ride these days.
Anyway my agent says I have the option to change the percentages (maximum of twice a year yata -- I need to check that with her). So when the market goes up, I can shift most of the funds to equities and take advantage of the upturn.
@ maricar
"there are advantages in getting a VUL policy versus directly investing in the stock market...
...diversification for only a small amount of money"
- In the case of VUL, the investment fund will really be a small amount because of penalties and fees. hehehe
@ chris-bro
Do you already have an annuity investment? mataas din ang hidden costs dyan.. gusto mo try? =P dyok lang.
K.I.S.T. ---Keep It Simple ....tupid!!
Analyze this (yes, I am talking to you Di Nero): What is the purpose of insurance, say property and casualty insurance? Or, why do you need life insurance? It's risk management, right?. Peace of mind, right?
Life, Car and Homeowners insurance are a must for the sole purpose of managing risk. Never to be mixed with investment products. VUL is for the TUPA..Kudos VUL vendors.. sorry mga kabayan, kung kayo'y papayag na hubaran at gawing mang-mang.
@chris:
I understand your point. For so much fees deducted you'd expect they service you well and put you in a better position financially, di ba? Not drain off your equity units precisely when you want to hold on to it for eventual recovery.
And on top of all these, 5% top-up fee? Mabato ko pa sa kanila sapatos ko hehehe :D
'Buy-term invest-difference' seems to be the most open Moneysmart secret around when it comes to insurance. You must appreciate by now the advantages of separate insurance and investments. The hard way, that is :D
@maricar: we're not really discussing VUL vs stocks or whole life insurance. It's VUL vs 'Buy term, invest difference'. Option 2 with separate protection and invesment is clearly superior. Cheap. Less middleman fees. Same diversification if invested in mutual funds. Simpler budgeting. And best of all none of this buy-equity-for-long-term-then-fork-over-to-Sunlife crap.
@ SoNn: 21k out of 25k? Have this funny feeling VUL is more like an agent fund-raising activity for HK Disneyland? You betcha! :D
@stan: Sorry I don't think "It doesnt matter kung number of units ang tatanggalin". Those equity fund units were meant to be kept long-term and to hold on to lalo't mababa ang market. So I'd be outraged to see Sunlife draining if off to pay for those fees they're charging me! Chris said it well, he can stomach the risk so he'd prefer holding on to those units till recovery, and not fork it out for payments. Lousy VUL plan design, they should have seen things from this angle.
@ acn: "some people fire, fire, fire then aim" yeah, you said it :D agent's intentions on VUL might have been good. but well, s**t happens.
@ Salve: yoohoo. Parang ako na ang sub mo sa iyong blog hehehe :D
"Do you already have an annuity investment? mataas din ang hidden costs dyan.. gusto mo try? =P dyok lang."
@acn
--you mean the endowment thing? the one you pay 20 years annually then they give you half lump sum then they give you money yearly till you die?..... think i have 2 of those.... 1 matured 2 years ago.... the other to mature in 4 years..... i plan on living for a very long time boss..... from the way you express yourself, i think i am more than 2 decades younger than you, boss.......walang personalan ^:)^
Hachiko,
Thank you. Continue to shove into the throat of our kabayan laxatives that will detoxify them from this toxic insurance product, a.k.a. VUL.
Salve,
Please Google who is A.L. Williams. Your column and blogs makes a difference re
educating our kababayan to be an educated consumers. Salamat.
"It’s a flexible product wherein your money works harder because you are covered with life insurance "
You put lipstick (insurance) on a pig, its still a pig. Unfortunately, in this market, pigs gets slaughtered.
@ chris.. 20 years younger ka sa kin? elementary ka pa kung ganon.. hehehe.. OT na tayo. back to topic..
i think it all boils down to convenience for some peeps here... kaya kahit high cost ok lang sa kanila. =D
"Different people requires different strategy in attaining their particular financial goals".
One financial solution maybe appropriate to a particular individual but it maybe totally inappropriate to another, even if they are of the same age. A true sunlife financial advisor should take into consideration the particular profile and risk tolerance of his prospective client.
Likewise, the so called "buy term insurance and invest the difference" is not always the absolute solution for everyone's problem - as what some advocates here seems to imply.
The same way that vul approach is not for everone, people here should accept the fact that some people are better of having a vul insurance policy to address their needs for protection and at the same time - an investment vehicle that they can ride for purposes of wealth accumulation.
Contrary to what the others say here, the cost of paying the insurance for a Sunlife Vul is actually even cheaper than that of the traditional term insurance that we all know of.
One advantage of getting vul is that it actually simplify things for you. Instead of getting a separate term insurance only and then investing separately into mf or the stock market by investing regularly into such investment funds, until the time you achieve your target goal such as your future retirement fund, sometimes it is best if you follow the vul approach instead.
Why is it so? Because of its comprehensive feature of automatically completing your goal not only in the event death but also in the event disability either due to accident or illness and even in the event of being diagnose of a critical illness.
Such interuption to your financial planning will surely be a disaster if you are not adequately protected for such risks.
Sure you will say..."that's why you buy term insurance so that you are covered in the event of death!"
yup...that is fine...but what if instead of death, what struck is disability or diagnosis of a critical illness instead?
What if you're target is to accumulate 5 Million in x no. of years and you have just accumulated 100K into your mutual fund and then disability strikes?
Will your mutual fund waived your succeeding regular contributions due to your disability or diagnosis of a critical illness, thereby assuring you that at the end of the target period you will have that 5Million worth of shares?
With Sunlife VUL, it is like riding an elevator to reach your goal. If you press the 10th floor button, whatever happens along the way...even if death, disability, or diagnosis of a critical illness such as stroke, heart attack or cancer strikes in any floor along the way, the elevator will take you up to your target destination - the 10th floor!
Same with VUL it will take you to your taget goal whatever happens along the way.
Even if you paid or deposited only an X sum of money, succeeding premiums will now be waived in the event of total and permanent disability.
Mutual Funds, Stocks, or even Time deposits, do not have that "self completing" feature unique to life insurance policies.
In event of diagnosis of a critical illness, you need not worry of the havoc or crisis such diagnosis will bring on your financial planning.
With VUL you don't need to die to enjoy the insurance protection provided by term insurance.
Sunlife's Sun Flexilink is designed to be precisely what its name connotes = FLEXIBLE. If you want only the protection side, then fine....go ahead...pay only the cost of insurance on a month to month basis. You will be surprised that it is even cheaper than the cost for an ordinary term insurance for the same coverage.
The only downside is that you don't get to buy additional shares into your investment fund since you are buying only protection.
Just sharing my views.
Cheers!
freedomfighter
Well said Freedom Fighter!
@freedomfighter
"Mutual Funds, Stocks, or even Time deposits, do not have that “self completing” feature unique to life insurance policies."
Then just buy ordinary insurance (not vul)to get that . Then buy a separate mutual fund , stock or time deposit to get higher investment yield without giving Sunlife control on what fees or commissions that will be charged to you. You will be in control of your investment not Sunlife. It is you who will decide whether to pull out on your investment or not. You will not be subject to Sunlife's vul rules.
I Love the way you write...thanks for posting
Thoughtful post and well written. Please write more on this if you have time.
Buy Term insurance and invest the difference.Premiums are cheaper way way cheaper. You can maximize your ROI too when you invest the difference since all your investments will be used to buy shares instead of high insurance premiums being used to pay high commission to your agent thats why on your first years of paying your premiums you dont earn any interest since its being to pay insurance cost and high commissions.
Most agents who are unprofessional recommends Vuls because of higher way way high commissions. But for agents who are very professional they will find ways to propose a product that really fits you and doesn't care if they earn lesser because of such recommendation.
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re prone to market fluctuations and by itself more risky than the other funds available laptop sleeve factory.
I'm glad SunLife took the time to clarify.
However, in order to make sure you get the most of your life insurance policy, it is important to shop around and use a life insurance calculator before settling on a specific company.
It also affords you the opportunity to invest in blue-chip securities, high-grade government bonds and other instruments that are otherwise accessible only to investors with a large sum of money.
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The benefit of keeping your policy in-force is that, regardless of market conditions or how your chosen fund is doing, you are guaranteed to be covered with life insurance equal to 5x your regular premium.
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I was offered a VUL two years ago. Although I think of myself as having above-average understanding of investment and finance, I just can't figure out how the Ginault Watches
really works.
I hope someone from Sunlife explain VUL more comprehensively, in addition to addressing Chris's concern.
This was exactly what i was searching for. Have been fighting for a while to do this, thanks for have posted.
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Why don't you just buy the so called "blue chip " stocks yourself? Why let Sunlife earn commissions off your money?houston gun safes