Why VUL Shouldn't Be Your Primary Investment Strategy

Why VUL Isn't Primarily an Investment Plan

VUL (Variable Universal Life) is often misunderstood as a pure investment vehicle. While it does involve an investment component, its primary function is life insurance protection.

Importance of Life Insurance: Life insurance is essential for everyone to protect income, family, business, and assets. It provides a safety net, ensuring financial stability for your loved ones in case of unexpected events.

Here's why VUL is not primarily an investment plan:

1. Insurance is the Core Product: The primary purpose of a VUL is to provide life insurance coverage. The investment component is a secondary feature designed to help increase the cash value of the policy.
2. Fees and Charges: VULs typically have higher fees compared to standalone investment products. These fees include insurance costs, mortality charges, and investment management expenses. These fees can significantly impact the overall return on investment.
3. Risk of Lapse: If the policyholder stops paying premiums, the policy may lapse. This means losing both the insurance coverage and the invested funds. This risk is not present in traditional investment accounts.
4. Investment Restrictions: The investment options within a VUL are often limited compared to a standalone investment account. This can restrict diversification and potentially impact returns.
5. Tax Implications: The tax treatment of VULs can be complex and less favorable than traditional investment accounts. Understanding the tax implications is crucial before making a decision.

Why Pure Life Insurance is Better: Pure life insurance, such as term insurance, focuses solely on providing life coverage without the added complexity and costs of an investment component. This ensures that your premiums are fully allocated towards securing the highest possible coverage for your family and dependents.

Standalone Investment Plans: For those whose primary goal is investment growth, standalone investment plans are typically more suitable. They offer:

• Lower fees and charges.
• Greater investment flexibility and diversification.
• Simpler tax treatment.

Conclusion: While VUL can offer some investment growth potential, it's essential to consider it as a life insurance product first and an investment vehicle second. If your primary goal is investment growth, there are more suitable standalone options available that offer better flexibility, lower costs, and simpler management.

Always consult with a financial advisor to determine the best strategy for your unique situation.

 Rabii Bou Shahin

Financial Advisor

M:+97466960167

E:rabiiboushahin@gmail.com