VUL Is Not a Scam, But It Is Often Misunderstood

VUL is a real insurance product. The problem starts when people buy it expecting it to behave like a pure investment.

I bought my first VUL when I was young.

At the time, it made sense to me. I understood the basic idea: life insurance with an investment component. You pay regularly, part of the policy gives protection, and part of it is linked to an investment fund.

The investment side was what made it exciting.

I was young, so I wanted exposure to equities. The idea of putting money into a Philippine equity fund felt responsible and ambitious at the same time. It was more interesting than keeping money in a savings account.

It also felt like a way to force myself to save.

The policy billed me regularly. I had to pay. The money had somewhere to go. For someone who had not yet built a serious investing habit, that structure felt useful.

Looking back, I do not think the mistake was simply buying VUL.

The bigger mistake was thinking about the product more as an investment plan than as an insurance contract with an investment-linked fund.

That difference matters.

Why VUL felt attractive

VUL became popular because it answered a very common hesitation about insurance.

Many people do not like paying for protection that feels like pure expense. With term insurance, you pay for coverage. If nothing happens during the term, there may be no cash value at the end.

For some buyers, that feels painful.

VUL gives a different story.

You are not only paying for life insurance. You are also building fund value. The proposal shows possible future values. There are investment options. The money feels like it is working somewhere.

For a young professional buying a first policy, that can feel like the best of both worlds.

You feel protected. You feel disciplined. You feel like you are investing. You feel like you are doing something adult.

That emotional appeal is powerful.

It also explains why many buyers remember the projected fund value more than the insurance structure.

VUL is still insurance

VUL stands for variable unit-linked insurance.

In simple terms, it is life insurance with an investment-linked component. Your policy can provide insurance protection, while part of the policy value is linked to funds chosen from the insurer’s available options.

Those funds may be equity funds, bond funds, balanced funds, money market funds, or other funds depending on the insurer and product.

But the key point remains the same.

VUL is still insurance.

The Insurance Commission’s VUL product-highlight template says that despite the investment aspect, a VUL policy remains essentially an insurance product.¹

That line corrects the most common misunderstanding.

You are not buying a pure mutual fund. You are not buying a guaranteed savings plan. You are not buying a stock portfolio with free insurance attached.

You are buying insurance that has an investment-linked fund value.

Part of the product is protection. Part of it is investment exposure. The two are connected inside one contract.

The projection is not the product

A VUL proposal can be persuasive because it shows future values.

The table gives the buyer something to imagine. If the fund grows at a certain rate, the policy may have this value after 10, 20, or 30 years. For someone new to investing, those numbers can feel very real.

Even when the proposal says the returns are not guaranteed, the mind still remembers the attractive scenario.

That is human.

We remember the dream faster than the disclaimer.

The problem appears years later when the actual fund value does not match the number we carried in our head.

That disappointment is real. But it does not automatically mean the product was fake. It may mean the buyer expected the policy to behave like a guaranteed investment, when it was always exposed to market performance, policy charges, and contract rules.

VUL can be legitimate and still be wrong for you

A product does not have to be a scam to be the wrong fit.

A VUL can be legitimate and still be too expensive for your cash flow.

It can provide real insurance coverage and still disappoint as an investment.

It can work for someone who wants bundled protection and fund value, but feel restrictive to someone who wants separate, flexible investing.

That is why the better question is not whether VUL is good or bad.

The better question is what job you are hiring the policy to do.

If your goal is affordable income protection, term insurance may be cleaner.

If your goal is investing, a separate investment account may give more control.

If your goal is long-term insurance with investment-linked value, and you understand the charges and risks, VUL may still be worth studying.

The answer depends on the problem you are solving.

The practical rule

VUL is not a scam just because the fund value disappointed you.

But it becomes a problem when you bought it thinking it was something else.

Before buying or keeping a VUL, understand the basic truth of the product: it is insurance first, with an investment-linked fund value that can rise or fall.

That structure can be useful.

It can also be confusing if you only remember the projected returns.

So do not buy VUL because the illustration looks good.

Buy it only if you understand the insurance you need, the investment risk you are taking, and the long-term commitment required to keep the policy working.

Sources

¹ Insurance Commission, Circular Letter No. 2017-34, “Revised Guidelines on Variable Life Insurance Contracts.”

² Insurance Commission, Circular Letter No. 2021-51, amendment to Circular Letter No. 2017-34.

For educational purposes only. Not insurance, investment, legal, or financial advice. VUL policy features, charges, funds, risks, guarantees, surrender rules, and premium requirements vary by insurer and contract. Review your own policy and consult a licensed advisor or qualified professional before buying, surrendering, or changing coverage.