So, you’re thinking about getting Variable Universal Life (VUL) insurance. Maybe you’ve heard it’s a “two-in-one” product: life insurance protection with the potential for investment growth. Sounds great, right?
But here’s what many people overlook: VUL insurance isn’t free to grow. Beneath the promises of cash value and flexible premiums lies a layer of costs that can affect your long-term gains—sometimes more than you realize.
Understanding what fees are in a VUL policy is just as important as knowing what you’re being promised. If you’re trying to figure out if this product is truly a fit for your life and financial goals, this breakdown is for you.
Why Fees Matter More Than You Think
Let’s say you’re investing P5,000 per month into your VUL policy. You might assume the entire amount is growing in your chosen investment fund. But that’s rarely the case.
Before your money even touches a stock or bond fund, several charges come off the top. Some fees are fixed. Others are based on your age, the policy’s value, or how long you’ve held it. And yes, they can add up.
Fees don’t mean a policy is bad—but you do need to know what you’re paying for, and how much of your money is really working for you.
1. Cost of Insurance (COI)
The cost of insurance is arguably the most important fee. It’s what you pay the insurer to provide the life insurance coverage. The amount depends on several factors:
- Your age
- Your health and lifestyle
- The size of your death benefit
As you get older, the cost of insurance typically increases. This means that even if your premium stays the same, more of it may go toward the COI and less into your investment fund over time.
Real-life insight: A friend of mine bought a VUL policy at age 30 with low COI charges. At 50, he noticed the growth in his policy slowed down significantly. Why? The rising COI ate into his investment allocation. That’s how important this fee becomes as the years pass.
2. Administrative Fees
This fee covers the basic operations of your policy: issuing the policy, maintaining records, processing payments, and so on. It’s often charged monthly and deducted directly from your account value.
Think of it like a service charge on your bank account. It may be a small amount (say, P100–P300 monthly), but over decades, it adds up. Plus, some policies add one-time setup fees or annual policy charges on top of the monthly admin fee.
Tip: Always ask your agent to show you these charges on the policy illustration. They’re usually detailed on the breakdown page.
3. Fund Management Fees
This one often surprises policyholders: the investment funds inside your VUL also have their own fees. These are the fees charged by the asset manager to handle your chosen funds, whether they’re equity-based, balanced, or fixed-income.
These fund management fees are not deducted upfront. Instead, they are baked into the daily pricing of the investment fund. You won’t see them directly—but they impact your returns.
Typical fund management fees range between 1% to 2.5% annually. Over time, that seemingly small percentage can create a big difference in the value of your fund.
Let’s do some math: If your fund earns 8% gross annually but has a 2% fund management fee, your net return is actually closer to 6%. On a policy you keep for 20 years, that’s a major impact.
4. Surrender Charges
Planning to withdraw your money early? Watch out for surrender charges. These are penalties for terminating the policy (or withdrawing cash) within the surrender period—usually the first 10 years.
These charges are often highest in the early years and decrease annually. For example:
- Year 1: 100% of the premium
- Year 2: 90%
- … down to 0% after year 10 (varies by policy)
If you’re the type who might tap into your funds early, these charges could cost you thousands. It’s a common reason people walk away disappointed, especially if they weren’t fully aware of these terms.
Other Possible Fees
Depending on your policy, there may be additional charges such as:
- Rider fees: Added protection like critical illness, waiver of premium, or accidental death benefit all come at a cost.
- Top-up fees: If you inject additional premiums (a.k.a. top-ups), some companies charge a small fee on each one.
- Withdrawal or fund-switching fees: Some policies charge for taking out funds or switching between investment options beyond a certain number of times per year.
These smaller charges may seem insignificant, but they’re worth reviewing if you’re planning to actively manage your policy.
Disclosure: It Depends on the Provider, Country, and Product
Important: Not all VUL policies charge fees the same way. Some insurers waive certain fees. Others front-load the charges or apply different surrender timelines. What’s standard in one country may be restricted or regulated differently in another.
Always remember: terms and fees can vary significantly from one insurance company to another, from one country to another, and even from one product to another within the same company.
Ask for a complete policy illustration, preferably both optimistic and conservative projections, to see how all fees impact your projected values.
Final Thoughts: Know the Costs Before You Commit
Buying a VUL policy isn’t just about protecting your future or investing your money—it’s about understanding what you’re paying and what you’re getting in return.
The flexibility of VUL insurance is powerful, but that power comes with costs. Knowing how fees work helps you avoid unrealistic expectations and make more confident, informed decisions.
Pro tip: If you’re comparing policies, don’t just look at projected returns. Look at the fees behind those projections. Sometimes, the policy that looks slightly lower in returns may actually be more efficient once all costs are considered.
VUL can be a valuable financial tool—but like any tool, it performs best when you know how to use it well.
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