There are so many investment instruments that you can choose today to help you to achieve your financial goals in the future. You can invest through mutual funds(Stocks), banks, real estate, UITFs, Variable Unit Linked(VUL) and even starting your own business.
I always believe in an adage that says “Do not put all your eggs in one basket.” Even the bible teaches us that. Ecclesiastes 11:2 says “Invest in seven ventures,yes, in eight; you do not know what disaster may come upon the land”.
You have to understand that we have to diversify. Diversification is the key to minimize the risks. As investopedia defines it: Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.
Therefore, it’s not wise that you only put your hard-earned money to a single financial instrument. I have one friend that told me that she already invests in stock market through a Mutual Fund Company and she is okay with it. I congratulate her that she makes a right decision in investing in a Mutual Fund but I’ve asked her if why she invests in stock market. She simply says that, someone just offers it to her and she finds it important in achieving her financial goals in the future. Will that be enough? Or maybe she is missing something more important than investing right away in a financial instrument that she finds in financial market.
As a Financial Literacy Advocate, I always teach that there’s always a proper way of creating your Financial Plan. We always have to go first to the foundation of Investment Pyramid. Before you can jump into the next step you, you have to go to the foundation first.
That friend of mine tells me that she invests in stock market right away without thinking that she has no life insurance protection yet. Why is that it is important that before you go to investing, you have to be insured properly first. Risks of life are always there, we cannot tell if when will be death, sickness, and disability come to us. These are income robbers.
I have one friend that tells me he has a friend that have money invested in the bank through stock market and he gets sick,a kidney failure. He does not have any form of Dread Disease Insurance, what he does is he withdraws all his money and his money has not grown yet. His money,as my friend told me, is used up all. He resorts to asking funds from his relatives and friends. He has passed away already and the wife is left with debts. What if that person did the right way of investing which he insured himself properly first.
Another story that I would like to share with you is there is I recently talk to a Network Marketing person who doesn’t believe that life insurance is important. I tell him that if death comes, where will his wife and children will get money to pay for their daily expenses, education, mortgages, and a lot more as he is the breadwinner. He simply says that his relatives will take care of his wife and children which he boasts that he is the one helping them now like his nieces and nephews sending them to school. He is sure that his relatives will take care of his family if he will be gone today. I just think that he is the one who has money to help his relatives now and what if he is gone today, does he not think that his relatives cannot help his wife and children even more because they can’t help themselves now.
With this, I believe that investing in Variable Unit Linked has advantages that some financial instruments do not have. Let me define Variable Unit Linked first. Investopedia defines it as a type of insurance vehicle in which the policyholder purchases units at their net asset values and also makes contributions toward another investment vehicle. Unit linked insurance plans allow for the coverage of an insurance policy, and provide the option to invest in any number of qualified investments, such as stock, bonds or mutual funds.
It is simply defines as Variable Unit Linked (VUL)= Investment + Life Insurance
Here are some points that we have to consider why we have to consider investing at VUL first as long as we are qualified to be insured.
- Variable Unit Linked works as the same as Mutual Funds. Funds are invested in stock market which your money can grow as high as 10% to 15% returns per year in long term. See below the performance below of Insular Life as of March 2016, May 2016, August 2016 and since Inception of our Funds.
- You will have your Fund Manager which is Insular Life to take care your funds to grow, compared if you will do it yourself, which if you have business or job you cannot monitor and study it. The companies that will be invested at are companies that are studied carefully which in long-term will grow like Globe, Jollibee, San Miguel Corporation, BDO, etc. You will have an access to a diversified portfolios because it will be invested in different kinds of industries like banking, real estate, manufacturing, energy, mining,telecommunications, power and a lot more. You cannot do it alone to invest in these kinds of portfolios because it is not easy. You will be a shareholder of these companies,therefore, if these companies earn, the policyholders(you) will also earn if invested long term rather saving your money in the bank that gives less than 1% per year.
- If the investment earns, it is tax-free, unlike all the investment financial instruments in the market. It is not covered by Estate Tax as long as the beneficiary is designated as Irrevocable Designation.
- You will have a guaranteed Life Insurance Protection if death comes. Let’s say a person is covered Ph1,000,000, his family will get Ph1,000,000.00 plus the funds he has in the stock market. Let’s say he starts investing with VUL this year and death comes after 3 months, his family will get the Ph1,000,000 death benefit plus the funds he has in stock market. What if he invests in stock market, if death comes after 3 months, his family will only get the funds he has in the stock market but the family needs to pay first the Estate Tax before they can get the funds.
- VUL also can give you Dread Disease Rider. Let’s say the client gets sick after 2 years like Cancer, after 30 days of diagnosis, he can claim a fund,let’s say Ph1,000,000.00 dread disease fund, which he can use to pay for the bills to cure his dread disease. Unlike if he doesn’t have Dread Disease Rider and critical illness strikes, his options will be withdrawing his money in the bank, stocks, sell properties, borrow funds, and a lot more. If death comes, his family can still get death benefit in VUL.
- It has no garnishment. The death benefit will be intact, if the person dies with life insurance and he has debt, the creditor cannot take the death benefit. Unlike if you have properties, money in the banks, investment in stock market, this can be used to pay for the debts of the person who dies.
- Investing in VUL does not require big investments. Even our janitor and security guards invested in VUL.
- This can be used for paying Estate Tax for Estate Planning.(Read my blog about Estate Planning)
- Payment is flexible. You can adjust it to the schedule you prefer like if you want to pay Annually, or Semi-annual or even quarterly.
- It also gives income replacement or the Special Accident Rider with Disability Indemnity. Let’s say a person gets disabled and he cannot work. VUL can give you the same income that you are earning. If your monthly salary is Ph40k per month, with this benefit, you will receive that amount per month as if you are earning from your job or business still even if you get disabled.
With these all points, I believe that getting yourself insured properly should be the priority. But with Variable Unit Linked, you will have a life insurance and you can also grow your funds at the same time. VUL can be used for your Children’s Education, Health Funds, Business Funds, Retirement Funds and any financial goals that you have in the future. It’s wiser to always look for ways how to diversify than putting all your funds in one financial instrument. As Warren Buffet says, “Never depend on single source of income, make investment to make a second source of income.”
What if you can create more sources of income? I think that will be much better.
I hope that you learn something from my blog. I look forward that you read my future blog.
Earn, Save, Insure, Invest and Preserve!
To learn more about Variable Unit Linked of Insular Life, you may reach me:
Archie M. Yuki
The Insular Life Assurance Ltd., Co.