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 13^th month pay will suffice.
6.         Hassle on claiming? Hmm. Not for me. J

Disclaimer: This is not rocket science. 

Till next time. ^_^