Life Insurance

**hinlog** · June 5th, 2021 07:33 PM

Originally Posted by sirkosero

I have life insurance + VUL + critical illness rider. In case i get seriously sick, i have something to cover my hospital bill. If i dont make it, my hospital bill is covered and my wife and kids have some money to keep them afloat for a few months/years.

The VUL part is supposed to be an investment. I really dont mind and didnt bother understanding this. The life insurance + critical illness is okay na. My agent informed me naman yesterday that half of the premiums i paid are growing in value (daw)

I have a few life insurances too. So medyo okay dapat kids ko if i die early.

My tip: get term insurance. The one you pay and renew yearly like the car insurance. Its much cheaper. Like 1/3 the price of the one with VUL. Then spend the rest of the budget in other investments or even pag-ibig MP2. BTID yata tawag nila dun.

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If I may add, normally, may specific amount lang ang coverage ng insurance (for ex 1k per day) thus, the amount may not be sufficient to pay for your entire hospitalization expenses.

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**sirkosero** · June 5th, 2021 08:04 PM

Thats a bit different from what i got. But i know what you mean.

The one i got is if i get diagnosed with type of illnes (usually happens in my family) the policy pays me the full amount of the policy(rider). So hindi siya per day.

Originally Posted by hinlog

If I may add, normally, may specific amount lang ang coverage ng insurance (for ex 1k per day) thus, the amount may not be sufficient to pay for your entire hospitalization expenses.

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**bmacavanza** · June 5th, 2021 08:17 PM

Life Insurance is to pay for your mortgages, etc.
I have Manulife too.

**hinlog** · June 5th, 2021 08:48 PM

Originally Posted by sirkosero

Thats a bit different from what i got. But i know what you mean.

The one i got is if i get diagnosed with type of illnes (usually happens in my family) the policy pays me the full amount of the policy(rider). So hindi siya per day.

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You got critical illness rider, check if you will indeed get the full amount upon diagnosis. My coverage is only 20pct of the sum assured as I recall. The one I have mentioned earlier is hospital income benefit, you are correct that is a different rider.

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**sirkosero** · June 5th, 2021 09:24 PM

The policy has a similar provision 20% for the less than critical illnesses But when it becomes the critical ones, you get the full amount. A different amount when its CA.

Still hoping i wont need it though. Its just one of those items i got when a friend who is an insurance agent needs help to reach quota. I figured "just get it..malay mo kailanganin"

Originally Posted by hinlog

You got critical illness rider, check if you will indeed get the full amount upon diagnosis. My coverage is only 20pct of the sum assured as I recall. The one I have mentioned earlier is hospital income benefit, you are correct that is a different rider.

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**hinlog** · June 6th, 2021 08:08 AM

Originally Posted by sirkosero

The policy has a similar provision 20% for the less than critical illnesses But when it becomes the critical ones, you get the full amount. A different amount when its CA.

Still hoping i wont need it though. Its just one of those items i got when a friend who is an insurance agent needs help to reach quota. I figured "just get it..malay mo kailanganin"

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That's a good extra coverage for you. Personally, being the sole bread winner, to be insured becomes a necessity. Lastly, check with your agent or insurance company if they still offer optional free rider so that your excess payments will earn interest. AFAIK, far better than the rate offers by the bank.

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**jut703** · June 6th, 2021 11:14 AM

Most efficient way to get covered is BTID - Buy Term and Invest the Difference.

I’ve done the math and BTID builds you more wealth in the long run than VULs.

3 key reasons:

1. Fees and commissions - for the first 5 years of your VUL, you’re basically just paying for your agent’s commission (around 50% of your premium on the first year is commission). Then you have management fees and annual premiums. All of that eats into the investment part of your VUL.

Annual premium for 1M coverage with term insurance is just 5k/year for a 30 year old, and increases only a few hundred pesos annually as you get older. Annual premium for 1M coverage (10-yrs to pay) is 50k per year. If you invest the difference, your investments will earn from compound interest much more because you’re avoiding the fees above.

2. Flexibility in investment - your VUL is typically invested only in either money market funds, bonds, or equities. They work like mutual funds. If you invest your money on your own you can put it in many other asset classes - real estate, crypto, business, etc.

3. Overselling by agents - I know so many agents who misinform (sometimes deliberately) their clients by saying VULs are investments and their money will grow significantly and enough for retirement if they get covered. That’s only partially true - only part of your VUL premium is invested, and you’re still really paying for 2 services - term insurance and investment, with fees eating up your premium as well. Many people are shocked to find that after paying 10 yrs worth of premium (say 50k/yr), they’ll find that their total fund value is actually less than the 500k they’ve paid.

For example, I’ve been paying my VUL for 7 years but my fund value today is actually just 70% of the price of the premiums I’ve paid. But that’s fine because a VUL is really intended for very long term benefit (i.e. when you die).

Now while I generally say that VULs are an expensive way to get protected vs BTID, one way to make them be better value for money is through critical health riders - you pay roughly around 10k extra per year but you’ll get coverage for about 500k worth of expenses if you ever get hospitalized or whatnot. There’s also typically a set number of reimbursable hospital days per year (I think 10 per year max).

You have to really read the fine print and run the math yourself because most insurance agents will not do that for you because they prefer that you get a VUL vs term insurance because they earn more that way since it has higher fees/commissions.

It’s a very predatory industry and I pity those who aren’t financially savvy enough and end up getting sales talked by these agents masquerading as “financial advisors” (whose only advice is for you to buy from them).

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**papi smith** · June 6th, 2021 11:42 AM

Jut, how about single pay vul? Will be like BTID because you only get to pay commission and fees once?

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**hinlog** · June 6th, 2021 12:11 PM

Originally Posted by jut703

Most efficient way to get covered is BTID - Buy Term and Invest the Difference.

I’ve done the math and BTID builds you more wealth in the long run than VULs.

3 key reasons:

1. Fees and commissions - for the first 5 years of your VUL, you’re basically just paying for your agent’s commission (around 50% of your premium on the first year is commission). Then you have management fees and annual premiums. All of that eats into the investment part of your VUL.

Annual premium for 1M coverage with term insurance is just 5k/year for a 30 year old, and increases only a few hundred pesos annually as you get older. Annual premium for 1M coverage (10-yrs to pay) is 50k per year. If you invest the difference, your investments will earn from compound interest much more because you’re avoiding the fees above.

2. Flexibility in investment - your VUL is typically invested only in either money market funds, bonds, or equities. They work like mutual funds. If you invest your money on your own you can put it in many other asset classes - real estate, crypto, business, etc.

3. Overselling by agents - I know so many agents who misinform (sometimes deliberately) their clients by saying VULs are investments and their money will grow significantly and enough for retirement if they get covered. That’s only partially true - only part of your VUL premium is invested, and you’re still really paying for 2 services - term insurance and investment, with fees eating up your premium as well. Many people are shocked to find that after paying 10 yrs worth of premium (say 50k/yr), they’ll find that their total fund value is actually less than the 500k they’ve paid.

For example, I’ve been paying my VUL for 7 years but my fund value today is actually just 70% of the price of the premiums I’ve paid. But that’s fine because a VUL is really intended for very long term benefit (i.e. when you die).

Now while I generally say that VULs are an expensive way to get protected vs BTID, one way to make them be better value for money is through critical health riders - you pay roughly around 10k extra per year but you’ll get coverage for about 500k worth of expenses if you ever get hospitalized or whatnot. There’s also typically a set number of reimbursable hospital days per year (I think 10 per year max).

You have to really read the fine print and run the math yourself because most insurance agents will not do that for you because they prefer that you get a VUL vs term insurance because they earn more that way since it has higher fees/commissions.

It’s a very predatory industry and I pity those who aren’t financially savvy enough and end up getting sales talked by these agents masquerading as “financial advisors” (whose only advice is for you to buy from them).

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On commissions, the agent gets only single digit %age on VUL premium ( I refer to premium income not the amount due)which is significantly lower than Term, AFAIK. I might be outdated on this tho. Term isn't a preferred choice because it will lapse as soon as the client misses to pay. Lapses in the agent's existing businesses affects their variable incentives too.

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**jut703** · June 6th, 2021 12:23 PM

Originally Posted by hinlog

On commissions, the agent gets only single digit %age on VUL premium ( I refer to premium income not the amount due)which is significantly lower than Term, AFAIK. I might be outdated on this tho. Term isn't a preferred choice because it will lapse as soon as the client misses to pay. Lapses in the agent's existing businesses affects their variable incentives too.

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For a 10 year VUL of say 50k per year (500k total premiums paid), the commission of the agent is typically as follows:

Year 1 - 25k (50%)
Year 2 - 15k (30%)
Year 3 - 15k (30%)
Year 4 - 10k (20%)
Year 5 - 10k (20%)

Total commission from a 500k payout = 15%
These are recent, actual figures shared by my friend who’s a licensed insurance agent.

So with the 500k that you paid, only 425k can get invested. You have to subtract 2% per year on management fees, plus the annual premium (around 300 pesos/yr only).

That 500k gets you roughly 1M coverage value. Plus whatever that total fund grows in say 30 years.

Term will auto-renew itself if you pay. If you don’t have the operational discipline to pay your term insurance year on year then go for a VUL and just pay for 10 years and be dome with it.

But I’ve done the math and for my case, BTID will net me 2 million pesos higher wealth by the time I’m 60 vs VUL.

BTID is like driving a manual/DSG transmission car while VUL is like driving a CVT. Obviously VUL is smoother and far more convenient but you’ll have slower laptimes than a manual/DSG.

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