A Variable Universal Life (VUL) plan is a long-term commitment designed to provide both insurance protection and unit-linked savings.
But life situations change—sometimes you may feel like you don’t want to continue your plan anymore. Before making any big decisions, here is a suggestion: pause and review first!
Ask yourself: “Why don’t I want to continue?”
Is it because of the cost of premiums? Is it because of poor fund performance? Or maybe your goals have shifted?
Once the reason for the discontinuation of the VUL policy has been identified, what are your possible next steps? Discover below:
Switch Funds
Disappointed with the poor fund performance of your VUL? Fund switching might be the best choice.
Fund switching means that you will transfer your current pool of funds to another that might be suitable to your current needs.
Example: if most of your funds are currently in bonds or fixed income instruments, you might want to consider shifting to funds with higher index or stocks allocation. Make sure that you also understand the risk that comes with fund switching as higher returns mean higher risks as well.
Utilize the Premium Holiday feature
If your fund value is enough, you can stop paying premiums temporarily.
This is what we call as the premium holiday – your VUL policy pays for itself through deduction of units in the fund value. The charges and insurance costs will be deducted from your accumulated fund value.
During premium holiday, all your insurance benefits are still in force only if the riders are classified as UDR or unit-deducting riders, versus the PPR or premium-paying riders (in this case, for the insurance benefits of the riders to still be in force, you need to pay regularly and premium holiday does not apply).
Example: you are paying P 10,000 quarterly for a VUL plan with UDRs. You currently have a fund value worth P 100,000 after paying for 4 years.
If you miss one quarter of payment, your policy is still in force but your fund value will be reduced to P 90,000 (assuming no changes in fund performance) after the deduction of units.
Reduce Coverage or Delete Riders
Depending on the VUL policy you availed, you may request to lower your coverage or reduce the premium amount through deletion of riders. Some VULs allow this change anytime during the policy period or during the first year.
This makes your plan more affordable while still keeping protection.
Example: You want to reduce your P 3,000,000 to just P 1,000,000, or maybe you want to remove the accident or illness benefits in your VUL policy, lowering your premiums.
Check with your advisor if this option is possible for your VUL policy.
Do Partial Withdrawal
If you need cash but still want to keep the plan active, you can withdraw a portion of your fund value.
Be mindful, however, that this will have an impact on your VUL plan’s sustainability – meaning that your VUL policy may not last as originally intended.
Example: you have a paid-up 10-pay VUL plan, meaning you already finished the 10-year paying period, with a fund value of P 500,000. You may choose to withdraw partially, say P 300,000, with the remaining P 200,000 to keep your policy active.
Make sure that you keep an ample amount for future charges – if the fund value becomes zero, all your policy benefits cease until there is enough fund value again through top-ups.
Cancel and Get Full Surrender Value
You can terminate your policy and get your fund value (less charges, if any).
Beware as you lose both the insurance protection and the potential long-term investment growth if you do this. Make sure at least that you have another life insurance plan in case of the unexpected.
If you have none, you may still be insured with a traditional life insurance plan – but make sure you are still insurable, or still able to get a policy (meaning you are in good health and have relatively non-risky occupation.)
Let Your VUL As Is or Until It Lapses
One thing to know about VULs is that the policy charges continue despite completing the pay period.
Example: if you finished paying for a 10-pay VUL, the charges remain on the 11th year onwards. Of course there is still opportunity for your funds to grow.
That means that eventually, when times comes that the fund growth or performance cannot keep up with the charges, the fund value zeroes out and as mentioned above, all policy benefits cease until there is enough fund value again through top-ups.
If paying further through top-ups is not one of your options, you can just keep your VUL as it is and monitor your fund value from time to time. Best to have a traditional life insurance plan, either term or whole life, to supplement your VUL policy.
Supplement Your VUL with a Traditional Life Insurance Plan
As mentioned above, it’s one thing to keep your existing VUL as it is. It’s another to have another life insurance plan that is free from worry in terms of sustainability, as traditional or ordinary life insurance plans offer guaranteed coverage in specific periods.
Explore traditional life insurance plans either term or whole life. Know the different via this article.
A consultation with a life insurance consultant is ideal so you could make a guided decision before doing anything with your VUL.
Let’s talk and take a look at your VUL policy through a comprehensive policy review or refresher.
Set an appointment with me, Dion Greg Reyes from AIA Philippines.
