A Guide to Insurance vs. Investment: Why Filipinos Should Keep Them Separate

If you’ve ever sat through a presentation about variable universal life insurance, you’ve probably heard the pitch: one product that covers both your insurance needs and grows your money. It sounds perfect. Why buy two separate things when you can get both in one package?

The problem is that combining insurance and investment rarely works out as well as it sounds. Most Filipinos would be better off keeping these two financial tools separate. Insurance should protect you from risk. Investments should grow your wealth. When you try to do both with one product, you often end up with expensive insurance and underperforming investments.

This isn’t about saying VUL or other insurance-investment products are scams. They work for some people in specific situations. But for most Filipinos trying to build financial security on a limited budget, separating insurance from investment makes more sense.

In this guide, you’ll learn what insurance and investment actually do, why mixing them creates problems, and how to build a better financial plan by keeping them separate.

What Insurance Actually Does

Insurance is protection against financial catastrophe. You pay premiums, and in exchange, the insurance company pays out if something bad happens to you. The purpose is simple: transfer risk you can’t afford to handle on your own.

Insurance Protects Others From Your Loss

Life insurance isn’t really for you. It’s for the people who depend on your income. If you die, your family still needs to pay rent, buy food, and send kids to school. Life insurance replaces your income so they can survive financially without you.

Term life insurance is the simplest version. You pay a monthly premium, and if you die during the term (usually 10, 20, or 30 years), your beneficiaries get a payout. If you don’t die, the insurance company keeps the premiums and you get nothing back.

That sounds like a bad deal until you remember what you’re actually paying for: peace of mind that your family won’t be financially destroyed if you die. For someone in their 30s supporting a family, a 10-year term policy with ₱2 million coverage might cost ₱500-800 monthly. That’s affordable protection.

Insurance Is an Expense, Not an Asset

The money you pay for insurance is gone. You’re not building wealth with it. You’re buying protection. This is completely fine and necessary, but you need to understand what you’re getting.

Your car insurance doesn’t become more valuable over time. Your health insurance doesn’t grow your net worth. Life insurance works the same way. You’re paying for coverage, not making an investment.

When insurance companies add investment components to policies, they’re fundamentally changing what the product does. Now it’s trying to be two different things at once.

What Investment Actually Does

Investment is putting money into something that you expect to grow in value over time. The purpose is to build wealth, fund future goals, and make your money work for you.

Investments Grow Your Wealth

When you invest in stocks, mutual funds, bonds, or real estate, you’re buying assets that can increase in value. A stock might pay dividends and appreciate in price. A bond pays interest. Real estate can generate rental income and appreciate.

The growth isn’t guaranteed, which is why it’s called risk. But over long periods, good investments tend to grow faster than inflation. Your ₱100,000 invested in a stock index fund might become ₱150,000 in five years, or ₱200,000, or sometimes less if the market drops.

The key is that you own something. If you invest ₱10,000 in a mutual fund, you own ₱10,000 worth of that fund. You can see its value, track how it’s performing, and sell it if you need to.

Investment Returns Come With Risk

The potential for growth means accepting the possibility of loss. Stock markets go up and down. Real estate values can drop. Businesses can fail.

This is normal and acceptable when you’re investing money you won’t need for years. Over 10 or 20 years, the odds of positive returns improve significantly. But you need to be comfortable with short-term volatility.

Insurance doesn’t have this problem because insurance isn’t supposed to grow. It just protects. Investment has this risk because that’s how growth works.

The VUL Problem

Variable Universal Life insurance tries to combine both. You pay premiums, and the company splits your money between insurance coverage and investment in funds. Here’s why it usually isn’t efficient.

High Fees Eat Your Returns

VUL policies have multiple layers of fees:

• Insurance charges
• Fund management fees
• Administration fees
• Front-loaded charges in the first few years

These can easily consume 30-50% of your premium early on.

If you’re paying ₱3,000 monthly for a VUL, maybe ₱1,500 actually goes to investment funds in year one. Compare that to paying ₱800 for pure term insurance and investing ₱2,200 in a low-cost mutual fund where 98% of your money goes to work immediately.

You’re Locked In

VUL policies often require 10, 15, or 20 years of payments. If you stop paying early, you might lose everything or get back only a fraction.

With separate insurance and investment, you have flexibility. If you need to pause investing because of an emergency, you can. Your term insurance keeps running.

Mediocre Investment Performance

The investment portion of most VUL policies underperforms compared to index funds. After all those fees, your actual returns might be 3-5% annually when a simple equity fund might return 8-10% over the long term.

The Better Alternative

For most Filipinos, the smarter approach is simple: buy cheap term insurance for protection, and invest separately for wealth building.

Term Life Insurance

Get a term policy that covers 10-15 times your annual income. If you earn ₱300,000 yearly, aim for ₱3-5 million in coverage. This ensures your family can maintain their lifestyle for years if you die.

Shop around. Companies like AXA, Manulife, and Philam Life all offer term policies. A healthy 30-year-old might pay ₱800-1,200 monthly for ₱3 million in coverage for 20 years.

That’s your protection handled affordably.

Invest the Difference

Take the money you would have spent on a VUL (maybe ₱3,000-5,000 monthly) and subtract your term insurance cost (maybe ₱800). The remaining ₱2,200-4,200 goes into investments.

Open an account with a mutual fund company or use investment platforms. Put money into equity funds for long-term growth, or balanced funds if you want less volatility.

Over 20 years, investing ₱2,500 monthly in a fund averaging 8% annual returns gives you approximately ₱1.5 million. The same ₱2,500 in a VUL after fees and insurance charges might give you ₱800,000-1 million.

That’s ₱500,000+ difference from just separating the two.

You Control Everything

With this approach, you can adjust both pieces independently:

• If your family situation changes and you need less insurance, reduce coverage and invest more
• If the market is down, pause investing temporarily without affecting your insurance
• You can see exactly where your money is going

Your insurance premium is clear. Your investment balance is transparent. No complicated statements trying to explain how much is insurance versus investment.

When VUL Might Actually Work

There are specific situations where VUL makes sense, but they’re not common.

If you’ve maxed out Pag-IBIG MP2, have a full emergency fund, are investing heavily, and want additional tax-advantaged savings, VUL might be worth considering. If you genuinely need forced savings and have tried other methods, the automatic deduction might help.

For wealthy individuals needing insurance for estate tax purposes, VUL offers some benefits. But if you’re budgeting ₱25,000-50,000 monthly, these situations probably don’t apply to you.

How to Make the Switch

If you already have a VUL policy, here’s how to think about it.

Check Your Policy Status

Look at your policy details:

• How long have you been paying?
• What’s your current cash value?
• If you’re in years 1-3, you’ve probably paid mostly fees
• If you’re past year 10, you might have decent cash value built up

Request an illustration from your agent showing what happens if you stop paying versus continuing for the full term.

Do the Math

Compare two scenarios:

• Continue your VUL for the full term
• Stop now, get cash value, buy term insurance, and invest the difference going forward

Use conservative estimates. Assume your VUL grows at 4% and your separate investment at 7%. Even with conservative numbers, the separate approach often wins.

Consider Your Age and Health

If you bought VUL when you were young and healthy but now have health issues, getting new term insurance might be expensive or impossible. In that case, keeping the VUL might make sense despite the costs.

If you’re still young and healthy, you can likely get affordable term insurance and make the switch.

The Bottom Line

Insurance and investment serve different purposes and work best when kept separate. Insurance protects you from catastrophic financial loss. Investment grows your wealth over time. Trying to do both with one expensive product usually means paying too much for insurance and getting too little investment growth.

For most Filipinos on a budget, the winning strategy is simple: buy cheap term life insurance for protection, and invest the difference in low-cost funds for growth. You’ll end up with better coverage, better returns, and more flexibility.

Stop thinking about insurance as something that should make you money. Start thinking about it as the cost of protecting the people who depend on you. That mindset shift alone will save you from expensive mistakes and help you build real wealth.