Sunday, October 27, 2013

The Real REAL score between VUL vs Term + Mutual Fund

My officemate approached me one day and consulted about VULs. Fact #1: Most people don’t know how to analyze when it comes to insurance coverage.

Tip # 1: if you want to finish RICH, take charge of your finances.

Financial life is not all about saving, it’s also about investing.

I asked her if she has the illustration of benefits and she showed me the PDF emailed to her by the agent. I studied the file and came up with my own excel sheet.

Disclaimer: Some of the details of the given illustration of benefits were hidden for the protection of the seller. If you find something similar to this, that may have only been a coincidence.

Assumptions and Considerations:
  •       The Proposed Plan Holder is a 34 years old non smoker.
  •       Policy Premium is P24,000.00
  •       Although the VUL involved should be paid until age 99, I only considered until age 65.
  •       Only the Living Benefit was compared.
  •       Interest rate used for the VUL was that of illustrated. The interest rate in Term + Mutual Fund is at 10% (same as that of the illustrated in VUL.) Fact #2: VULs and any other investment companies DO NOT guarantee returns. This is for illustration purposes ONLY.
VUL

Term + Mutual Fund
Age
Premium
Living Benefit

Insurance
MF
Living Benefit
35
24000
35

4,813
19,187
                  21,106
36
24000
74

6,651
17,349
                  42,300
37
24000
11,984

6,651
17,349
                  65,614
38
24000
29,176

6,651
17,349
                  91,259
39
24000
49,938

6,651
17,349
                119,469
40
24000
74,589

6,651
17,349
                150,500
41
24000
101,280

10,017
13,983
                180,931
42
24000
130,116

10,017
13,983
                214,406
43
24000
161,333

10,017
13,983
                251,228
44
24000
195,091

10,017
13,983
                291,732
45
24000
231,625

10,017
13,983
                336,286
46
24000
271,134

14,854
9,146
                379,975
47
24000
313,898

14,854
9,146
                428,034
48
24000
360,182

14,854
9,146
                480,898
49
24000
410,302

14,854
9,146
                539,048
50
24000
464,562

14,854
9,146
                603,013
51
24000
523,299

22,971
1029
                664,447
52
24000
586,807

22,971
1029
                732,023
53
24000
655,427

22,971
1029
                806,357
54
24000
729,495

22,971
1029
                888,125
55
24000




                976,937
56
24000




            1,074,631
57
24000




            1,182,094
58
24000




            1,300,304
59
24000




            1,430,334
60
24000
1,313,714



            1,573,367
61
24000




            1,730,704
62
24000




            1,903,775
63
24000




            2,094,152
64
24000




            2,303,567
65
24000
2,048,849



    2,533,924.03

Comparison:
  1.       Comparing the living benefit, it is EVIDENT that all throughout, my officemate will get better returns if she combines the Term Insurance with a Mutual Fund.
  2.      On the VUL, my officemate will still continue to pay even after age 55 but will still get lower return. On the other hand, even if my officemate will stop paying for the insurance [Please NOTE: I don’t believe that a person needs a WHOLE LIFE insurance.] the Mutual Fund will still keep accumulating still beating the return of the VUL. Please refer to the Living Benefit at the age of 65.
  3.       Even if the insurance cost increases for the Term (Age 51-54) please note that the living benefit STILL beats that of the VUL.

My opinion and recommendation to my friend:
  1.        Finance is all about the numbers game. If you are lazy to compute and compare, you might be losing millions in a span of “how-many” years.
  2.       This is just for illustration purposes only. I just presented here the facts that I know. And I don’t believe that a person needs whole life insurance. 
  3.       The insurance component is an actual product.
  4.       A 35 year-old should be able to save Php24,000.00 a year provided that he/she is working. That is equivalent to 1 month pay.
  5.       With all the expenses in the family, how can I afford to save P24,000.00 a year? Simple. Your 13th month pay will suffice.
  6.         Hassle on claiming? Hmm. Not for me. J

Disclaimer: This is not rocket science. 

Till next time. ^_^