VUL Charges & Concepts

LEARN THE CONCEPTS & FEATURES

There are numerous concerns on how VUL charges are applied to the policy. Most people I encounter tend to be “reactive” when we start discussing the concept behind VUL charges. Before we begin though, I personally prefer to dub these charges as “fees” instead. For me, it sounds more acceptable as a rational rational cos t behind every product set-up. The Insurer collects fees with the intent to fund administrative costs, sales transaction, future claims, taxes, and essentially make profit. These are being determined using tables computed by Actuaries based on mathematics and actuarial science. Premium Guaranteed Policy’s Face Amount Fund Value

RISK-SHARING BUSINESS Premium Charge

Periodic Charge, COI,

Both Traditional life insurance and VUL products have a variety of fees. Traditional life insurance fees insurance fees are bundled and billed all together. together. In essence, it’s embedded and implicit in the product’s premium. The client does not have a choice of the investment funds. It’s the Insurer who invests and guarantees the product’s cash value and face amount. The Insurer looks for safe instruments and usually requires more money (or higher premium) to generate the “guarantees”.

VUL products on products on the other hand, put greater responsibility on the client. The client assumes all the investment risk, potential market growth as well as selects and monitors his own underlying investment options, instead of the Insurer doing the decision for him. The fees in VUL are transparent, clear or explicit. The control and allocation of every premium the client pays should also be detailed or well-defined to him unlike traditional life insurance.

Sun MaxiLink Prime/Male/30/NS/1M FA/ADB/TDB

SAMPLE PROPOSAL: Sun MaxiLink Prime Male/30/NS FA: 1,000,000/ADB: 1,000,000/TDB: 1,000,000

Illustration of Premium

Policy Year

Premium Charge (Initial Charge)

CANCELLATION OF UNITS Monthly Periodic Charge

Insurance Charge

1

F.M.C2

Basic Plan 1st 65% of the Basic Premium n/a based on Net Amount Fund Mgt Charge is 2nd 5% 40% of the Basic Premium/12 at Risk (NAR) at attained imposed on each 3rd 5% 20% age up to age investment fund. It 4th 5% 5% 88 accrues daily and is 5th 5% 5% deducted monthly in the calculation of net ass et value on each investment fund. Excess Premium* 5% *Excess Premium starts on the 11 th year onwards.

Note: No Premium Charge & Monthly Periodic Charge on Rider Premium and Extra Premium.

Let’s take the 10-year paying period of Sun MaxiLink Prime and learn the charges and see also what happens on the 11 th year onwards.

1. Compute for the Premium Charge Basic Premium Step 1: 54,000 x 65% = 35,100 Step 2: 54,000 – 35,100 = 18,900 Step 3: 18,900/price per unit

ADB Premium 1,800/price per unit No premium charge

TDB Premium 1,230/price per unit No premium charge

2. Compute for the cost of insurance (COI)

1st Year

Basic Coverage Step 1: 1.85300*(2M/1000) = 3,706 Step 2: 3,706/12 months = 308.8 Step 3: 308.8/price per unit

ADB Coverage Step 1: 1,800/12 mths = 150 Step 2: 150/price per unit

TDB Coverage Step 1: 1,230/12 mths = 102.5 Step 2: 102.5/price per unit

Summary:





2nd Year




3. Compute for the Monthly Periodic Charge (starts on the 2 nd year) Basic Premium Step 1: 54,000 x 40% = 21,600 Step 2: 21,600/12 months = 1,800 Step 3: 1,800/price per unit

ADB Premium

Not applicable

2nd Year continuation

Summary:

TDB Premium

Not applicable





3rd Year




3. Compute for the Monthly Periodic Charge Basic Premium Step 1: 54,000 x 20% = 10,800 Step 2: 10,800/12 months = 900 Step 3: 900/price per unit

ADB Premium

Not applicable

3rd Year continuation

Summary:

TDB Premium

Not applicable





4th Year





ADB Premium

Not applicable

4th Year continuation

Summary:

TDB Premium

Not applicable





5th Year





ADB Premium

Not applicable

5th Year continuation

Summary:

TDB Premium

Not applicable

1. Compute for the Premium Charge Basic Premium 54,000/price per unit No more premium charge




6th Year




Summary:





7th Year

Basic Coverage Step 1: 1.8722*(2M/1000) = 3,744 Step 2: 3,744/12 months = 312 Step 3: 312/price per unit



Summary:





8th Year




Summary:





9th Year

Basic Coverage Step 1: 1.8786*(2M/1000) = 3,757 Step 2: 3,757/12 months = 313 Step 3: 313/price per unit



Summary:





10th Year




Summary:





11th Year ONWARDS


ADB Coverage No more rider charge

TDB Coverage No more rider charge

Summary:

o

o

o

o

o

Despite probable risks, fees and volatility in value, if the market is good, VUL can potentially give higher returns, especially on a long term basis. Before buying a life insurance policy, be sure you understand the policy fees. Insurance companies deduct some industry standard fees from your premium and cash/fund value. Keep in mind that these fees vary by product. No Premium Charge for Riders and Excess Premiums (it goes to FV directly)

No Monthly Periodic Charge for Riders and Excess Premiums (INCLUDING Single Pay VUL).

ADDITIONAL NOTES VUL Products and Charges

Policy Year


Basic Plan 1st 85% of the Basic Premium 2nd 5% 3rd 5% 4th 5% 5th 5% 6th 5% 7th 5% 8th 5% 9th 5% 10th 5% Excess Premium 5%

CANCELLATION OF UNITS Monthly Periodic Charge n/a 50% 25% 5% 5%


Insurance Charge

1

F.M.C2

based on Net Amount Fund Mgt Charge is at Risk (NAR) at attained imposed on each age up to age investment fund. It 88 accrues daily and is deducted monthly in the calculation of net asset value on each investment fund.

Policy Year



Insurance Charge

1

F.M.C2

Basic Plan 1st 30% of the Basic Premium n/a based on Net Amount Fund Mgt Charge is 2nd 5% 15% of the Basic Premium/12 at Risk (NAR) at attained imposed on each 3rd 5% 5% age up to age investment fund. It 5% 88 accrues daily and is 5% deducted monthly in the calculation of net ass et value on each investment fund. Excess Premium* 5% *Excess Premium starts on the 6 th year onwards.


Policy Year



Insurance Charge

1

F.M.C2

Basic Plan 1st 65% of the Basic Premium n/a based on Net Amount Fund Mgt Charge is 2nd 5% 40% of the Basic Premium/12 at Risk (NAR) at attained imposed on each 3rd 5% 20% age up to age investment fund. It 4th 5% 5% 88 accrues daily and is 5th 5% 5% deducted monthly in the calculation of net ass et value on each investment fund. Excess Premium* 5% *Excess Premium starts on the 11 th year onwards.


Policy Year

Premium Charge

(Initial Charge) Single Pay Plan 1st 5% of the Single Premium

Excess Premium 5%

CANCELLATION OF UNITS Monthly Periodic Charge n/a

Insurance Charge

1

F.M.C2

based on Net Amount Fund Mgt Charge is at Risk (NAR) at attained imposed on each age up to age investment fund. It 88 accrues daily and is deducted monthly in the calculation of net ass et value on each investment fund.

VUL Charges & Concepts

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