VULs: Multipurpose wealth planning tool

Question: I am helping out in our small family business and I want to know how I can utilize insurance products such as VULs or Variable Universal Life Insurance? (asked at my Facebook page)

Answer: Thanks for your question. VULs are basically life insurance products with an investment component. The investment aspect works similar to how pooled funds are invested (mutual funds/UITFs). As with any investment, past performance does not guarantee future results. There are many different types of policies to consider, at different price levels, which are beyond the scope of this article.

VULs are flexible and versatile enough to be used not just for your own family but also for business and wealth planning; these can also have higher premiums compared to traditional insurance.

Individual  Benefits

The reason for buying life insurance, of course, is to protect your family. When the insured dies, the death benefit (and the accumulated cash value) can help the family in many ways:

* (When still building it) Forced Savings Plan and Future Retirement income

* Fund the education of children (withdrawals or after death)

* Income replacement for the family until they can recover

* Settle medical (critical-illness) and funeral expenses or even some mortgages and debt

Business Use (this excludes: group life & non-life insurance)

* Passing on ownership of a business interest–when a business owner (in a partnership or corporation) retires or dies, the remaining owners need to buy the portion of the business owned; protecting the wealth of the business.

* Source of Funding –The above can be done with traditional insurance policies but you can choose VULs if you want to maximize the “Time-Value-of-Money” (or depends on business partners’ agreement on cash value use) rather than a policy loan, but that is also another funding source option.

* Generating retirement income – rather than fund the retirement of employees from profits, another way is to have a traditional insurance (paying dividends) or a VUL where  the employer is a beneficiary of the policy. That can be surrendered when the employee retires or dies wherein the funds will be given as retirement income or the benefit is given to the employee’s family.

Wealth  and  Estate  Planning

* Paying estate taxes– When we die, all our properties, cash and accumulated value of our estate is subject to estate tax (20 percent for Philippines’ BIR). With proper planning, the cash value appreciation and insurance coverage can help mitigate the burden of taxes to be paid by our families.

* Transferring wealth–unlike wills, VUL senables you to name your beneficiaries. If you have a lot of children, it is also a way to equalize inheritance (E.g. 4Million divided by 4 children).

There is no one-size-fits-all strategy and VUL is only one toolto consider. Just as much as money is needed to fund start-up businesses, it doesn’t mean you can keep throwing money at business problems; also, things can easily get complicated (depending on how the family/business is structured) which often leads to overpaying or just wasting your resources.

This is for informational purposes only and should not be construed as providing Financial advice or solicitation for the purchase or sale of any security. Please consult an independent Fee-only Financial Planner for specific information regarding your situation.

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The writer is an RFP® - RFP PHregistered financial planner, Licensed Real Estate Broker and Director of CERTA, Inc., a family estate planning and investment advisory firm. To know more visit www.certa.ph