Concept of Variable Unit-Linked

In this module, you will discover why Variable Unit-Linked (VUL) has become the most popular
insurance plan in the past decade. In simple terms, VUL is a financial product that offers the best of both
worlds - guaranteed insurance benefit and fund accumulation. Since the policy is linked to different asset
classes such as stocks and bonds, VUL presents earning potential that may not be offered in a traditional
policy.
Lesson 1 of 11

Learning Objective

By the end of this module, you will be able to:

Describe the concept of Variable Unit-Linked (VUL)

Lesson 2 of 11

Definition of Terms

 You can access this later on by using the Table of Contents.

Variable Unit-Linked
–
A life insurance policy that offers both insurance protection with benefits (or fund value) directly related to the
performance of the investment funds chosen by the client

Offer price or Selling Price

–
The price which the insurer uses to allocate units to a policy when premiums are paid

Bid price or Buying Price

–
The price which the insurer will give for the units if the policyholder wishes to cash in or claim under the policy
Top-ups
–
These are single premium injections which can be used to buy additional units

Premium Holiday
–
This refers to the cessation of premium payments on a variable life insurance contract for a period, with a view to
continue it later on

Forward Pricing
–
This is a pricing structure wherein the buying and selling prices of units are determined at the next valuation date

Allocation of premiums
–
This is the periodic distribution of premiums to insurance and units

15 day cooling-off period

–
This means that the contract may be returned within 15 days of receipt by the policyholder
Grace Period
–
31 days grace period

Policy Fee
–
This covers administrative expenses

Mortality Charges
–
This covers mortality cost (dependent on age)

Unallocated Premiums
–
This is a part of the premium being deposited for marketing & setting-up expenses of the policy

Full Withdrawal Charges

–
This is deducted when the policy is fully withdrawn
Bid-Offer Spread
–
This is the difference between bid and offer prices

Fund Management Fee

–
It is imposed on each investment fund (0.5% - 2% per annum) and is used to cover investment expenses

Switching
–
- Facility for transferring from one fund to another
- Limited number of switches are usually not charged
- Useful in retirement and education fees planning

Fund Allocation Charge

–
Charges that are imposed when there are changes in the fund allocation in the policy

Complete the content above before moving on.

Lesson 3 of 11

Key Concepts: Traditional vs. Non-Traditional Policies

To understand what VULs are, here is a high-level overview of the difference

between Traditional and Non-traditional Policies.

Click each card to learn more.

1. Premiums, cash values and

death benefits are pre-
determined.
2. Policyholders do not have
investment options
3. Implicit charges

Examples: Whole Life,

1. Cash Values/Fund Values

are not pre-determined
 2. Additional premiums may
be allowed (on top of regular
premiums)
3. Policyholders may have

Complete the content above before moving on.

Next: Key Concepts: Universal Life (UL) vs. Variable Life (VL)
Learn the difference between these two concepts.

LEARN MORE
Lesson 4 of 11

Key Concepts: Universal Life (UL) vs. Variable Life

(VL)

You will now explore the difference between Universal Life (UL) vs. Variable
Life (VL).

Click each card to learn more.

1. Unbundled
2. Flexible Premiums, Death
Benefit
3. Seen as savings account
plus term insurance
4. Interest credited to account
value, usually subject to
minimum interest rate

1. Fixed premium, minimum

death benefit
2. Cash value depends on
investment performance
 3. Policy owner has a choice
of investment funds

Complete the content above before moving on.

Next: VUL Defined

What is VUL?

LEARN MORE
Lesson 5 of 11

VUL Defined

Variable Unit-Linked or VUL is a life insurance policy that offers both insurance protection with benefits (or fund
value) directly related to the performance of the investment funds chosen by the client.
VUL combines the:

Premium & death flexibility of Universal Life (UL)

Investment Control of Variable Life (VL)

Watch this short video to learn more about VUL.

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patience.)

Complete the content above before moving on.

Next: VUL Advantages
Discover VUL advantages.

LEARN MORE
Lesson 6 of 11

VUL Advantages

Click each tab to learn more about VUL advantages.

Diversification
–
- Reduces the risk
- Invested in a wide array of issues/securities
- Wide range of investments with a small sum of money

Professional Management
–
- Experts/full-time professional managers
- Analyze various investments products available and select those that would give possible returns

Flexibility
–
- Simple product designs: investment driven or insurance based
Access
–
- Low capital requirement
- The ability to readily convert investments into cash

Administration
–
- Can be purchased directly from the fund/broker/financial planner
- Tracking through-financial statements & financial pages of newspaper
Changes are Transparent
–
- Premium charges, insurance charges, investment charges & administration fees

Investment Risk (Risk/Reward Trade-off)

–
- The less the risk in a given investment, the less the opportunity for gain. The more risk assumed, the greater the
potential return
- Death and disability benefits are dependent on sum assured and/or value of units
- Suitable for those who can tolerate short-term fluctuations in cash value
- Not for those who want high protection and guaranteed cash and maturity values

Gets the client involved

–
With certain charges, the client can:

- Make full and partial withdrawal

- Add subsequent investments anytime
- Vary investment mix at anytime
- Be involved in maximizing fund returns through peso-cost averaging
 Complete the content above before moving on.

Next: Peso Cost-Averaging

Learn how people are able to take advantage of peso cost averaging through VUL

LEARN MORE
Lesson 7 of 11

Peso Cost-Averaging

With VUL, people are able to take advantage of peso cost

averaging

Peso cost averaging is an investing technique intended

to reduce exposure to risk associated with making a
single large purchase. The idea is simple: spend a
fixed peso amount at regular intervals (e.g., monthly)
on a particular investment or portfolio, regardless of
the unit price.
It leverages the basic principle of supply and demand by, purchasing more
units when prices are low and fewer units when prices are high.

This means, less time and effort is invested to monitor market movements and
to strategically time one’s investment.

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patience.)

Complete the content above before moving on.

How can we maximize the returns of the fund?

Encourage regular monthly top-ups.

Instill the discipline and habit of saving.
 Buy low, sell high!

Complete the content above before moving on.

Next: Knowledge Check

Review what you've learned.

LEARN MORE
Lesson 8 of 11

Knowledge Check
Question

01/03

This combines the premium and death flexibility of Universal Life (UL) and the Investment Control
of Variable Life (VL).

Variable-Unit Linked

Traditional Insurance

Financial Planning

Financial Portfolio
Question

02/03

This is an investing technique intended to reduce exposure to risk associated with making a single
large purchase.

Risk Appetite

Variable-Unit Linked

Traditional Insurance

Peso-Cost Averaging
Question

03/03

This VUL advantage reduces risks as investments are done in a wide array of issues/securities.

Diversification

Administration

Professional Management

Flexibility
Lesson 9 of 11

Summary


 

Variable-Unit Linked Life Insurance is an insurance contract with benefits related directly to the performance of units.
 

The performance of the units is directly linked to the performance of assets.

 

The units are backed by specific assets like shares, bonds, property, and unit trusts.
 

It has a Guaranteed Face Amount.

 

Cash surrender & maturity values are not guaranteed.

 

Insurers collect charges from unit fund to cover related operating expenses.

Complete the content above before moving on.

Next: Achievement Badge

You are about to complete the module.

CONGRATULATIONS
Lesson 10 of 11

Congratulations!

You have completed Module 1.

You have earned a badge!

Next: Resources
You may download the module handout.

DOWNLOAD
Lesson 11 of 11

Downloadable Handout

Click the PDF document to download the module handout.

Concept of Variable Unit-Linked.pdf

6.3 MB

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