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Lately I have been encountering more Variable Universal Life products being made available for distribution in PhillipCapital. Universal Life (UL) have been around for sometime now so what exactly is the difference that puts the “Variable” in VUL. But first up, some extracts taken from Swiss Life Global Solutions.

Variable Universal Life as Insurance Solution
Comparing Variable UL with Traditional UL

2 major standouts in Variable Universal Life for me are:

Difference in Policy's underlying assets.

The traditional UL mostly consists of bonds with crediting rates that may or may not be fluctuating nor guaranteed. There is little control over the investment strategy.

But with VUL, the underlying assets are bankable assets (Bankable assets that are listed on an exchange and traded on a secondary market with daily price quotation. E.g. mutual funds, listed shares, listed bonds). The investment control of the portfolio is retained with the policyholder via the asset manager.

Enhanced legacy planning applications.

As you would have spotted in the extracts already, traditional UL death payouts are in cash whereas for VUL, it need not be the case. Beneficiaries will have a choice to receive the insurance payout in cash and / or by transfer of assets. High net worths with large investment portfolios will raise an eyebrow to this interesting distribution of estate mechanics. Family offices for high net worths might take a look too.

What are the intricate setup mechanics of such policies to take note of?

There has to be a Custodian – the Financial Institution (designated by the Policyholder), appointed by the Insurer, takes the role of custodian in relation to the Policy Fund. Obviously this custodian better have a capital markets license to deal in securities or be a trading member to market exchanges. Not all financial advisory firms can be such and likely have to partner a stockbroking firm or a bank for this aspect.

The Custodian for the Policy Fund will be designated by the Policyholder and appointed by the Insurer once the application has been accepted. The Insurer will open separate and identifiable account with the Custodian in the name of the Insurer on which the Initial Premium and/or Additional Contribution shall be transferred.

The Asset Manager will be designated by the Policyholder during the application, and appointed by the Insurer. Only one Asset Manager can be designated for each Policy Fund.

An agreement with the Asset Manager will be setup with respect to the Policyholder’s defined investment strategy for the management of the Policy Fund. The Insurer will grant the Asset Manager a limited power of attorney on the Custodian account and the Asset Manager will make all the investment decisions that are deemed necessary in managing the Policy Fund within the context of the investment strategy that the Policyholder has defined.

Insurance coverage does not come free. Deduction of mortality charges operate similarly to the usual investment-linked plans (ILP) that many have come to love and hate. Well at least the choices for underlying investment now goes beyond mutual funds in this case. For those who find such setups fit into their legacy and succession planning, the entire structure makes sense. If you know of anyone who can benefit from my services, please do not hesitate to reach out to me.

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