VUL vs Term Insurance: Analysis of Which is More Affordable

VUL vs Term Insurance: Analysis of Which is More Affordable

It’s always been a debate of what life insurance is best, Variable Universal Life (VUL) or Term Insurance.

VUL is a life insurance that has an investment component. Meaning, a part of your payment goes to the charges(insurance charge, administrative charge, etc.) and the remaining amount goes to the investment portion. This type of plan has a payment term of one time, 5 years and 10 years. If the investment fund value is not enough to cover the charges, the insured need to pay for the charges to stay in force. You are covered until age 88.

Related Article: What is VUL?

On the other hand, term insurance has to be paid for life. It is more affordable compared to VUL in terms of the premium. However, the premium goes up every 5 years until the end of coverage which is 75.

I will be making a comparison between Sun Maxilink Prime (VUL) and Sun Safer Life 5YRCT (Term Insurance). I will be using a Face Amount of 1 million and a death benefit of 200% meaning it is a 2 Million Death Benefit. It is for a 25-year-old male, non-smoker.



Years of Coverage

For VUL, you are covered until age 88 and for Term, you are covered until age 75. Meaning if you outlive 75 then you are not insured anymore. For VUL. you will be given the whole fund value if you outlive the maturity period of 88.

Paying Period

You have to pay the premium of a VUL policy until the 10th year not unless the fund value is not enough to cover the charges anymore. For term insurance, you have to pay it until age 75.

Premiums

It is more affordable to pay for the premium of term insurance compared to VUL. That’s only if we will compute for the premiums within 10 years of VUL and 10 years of Prime. However, if we will compute for the sum of premiums for a VUL for 10 years and the premiums of Term until age 75. It is cheaper to get a VUL.

Maybe, it would be unfair to compare premiums since VUL has an investment component included. I decided to compare only the charges for the insurance of both plans. I added the charges of a VUL until age 88 and I got a total amount of Php 2,436,528. Meaning the charges is higher compared to the death benefit of 2,000,000. A difference of Php 436,528.

I did the same computation for term insurance. I added the premiums of the Term since it will technically be considered as the insurance charge also. The got a total amount of 1,144,350. It only means that it is 53% lower than the VUL. Refer to the figures below.

However, we are comparing the charges 63 years worth of charges for VUL. (88 maturity age)-(25 age of the insured)=63 years to a Term which only has 50 years worth of charges. (75 covered age)- (25 current age of the insured)=50 years. See figures above. It only means that there is no doubt that the charges of VUL are higher.

To make the comparison fair, I only computed the charges of the VUL until age 75 to make it the same as the covered age of Term. To my surprise, the total charges of VUL until age 75 is only Php. 838,855. It is 27% lower than the Term which is 1,144,350.

Conclusion

If you say Term is cheaper than VUL, then it will only apply to the current cost of both insurances if anything happens to you earlier than you expect. If you look at the long term cost of both insurance, VUL is cheaper.

If you don’t want to stress yourself paying for the insurance for life, go with VUL since you have an option to pay it 1, 5 or 10 years of premium. However, your investment fund value may not be enough to pay for the charges until you turn 88 if the investment did not turn out well. Another advantage of VUL is the flexibility of payment, it doesn’t lapse right away if you were not able to pay within the grace period.

In the battle between VUL and Term Insurance, both have the same advantage. It will always depend on what is your life and investment principle.

Leave a Reply

Close Menu