PruFlexiCash vs PruSave

[Hexagonal]

Hi,

I recently go through the policies that i bought a few years ago (mainly PruFlexiCash and PruSave) and studies it and would like a few unbiased comments from experts here. (Instead of going through my agent)

I bought a PruFlexiCash 3 years ago, paying a monthly premium of $75.66. Have 10K TPD and Crisis Waiver, which is insignificant. It was sold as a saving plan during my NS days that could give me better returns than banks in 25 years later. As i was not so financial savvy during that time, i signed.

2 Years later, my agent called me asking to meet me to show me something (an "Upgrade") to the existing plan i have. She showed me another product call PruSave, which requires a monthly premium of $52.56/month. She said that this plan is an upgrade of the previous plan and can give me better returns and does not require any cash. (As i can use my yearly cashback of $500 from my PruFlexiCash) to pay for the premiums. As i don't need to pay any cash, i agreed and signed for it as she claimed that i can get better returns and it was just an "Upgrade"

Now with a little more knowledgeable from reading, i'm begin to scrutinise my policies and have a few doubts. Hopefully someone can give an unbiased answer.

My main question is: Does it make sense to choose the yearly cashback option and get the $500 yearly and then use it to pay for another policy which does almost the same thing? Do i get MORE returns by doing that as compared to just accumulate the cashback in my first policy?

By taking up a second policy, i'm actually paying another layer of fees and deduction to the company and agent and i'm quite sceptical how it can give me better returns?

Now i called up the company and realised that if i surrender both policies, i get nothing back.

Any comments please? Thanks.

 

[RockyHero]

Hi Hexagonal,

The PruFlexi cash policy allows you to withdraw part of your yearly savings from the third year onwards. These are not your earnings but are part of the savings you accumulated over the past few years. From what i can see here is your agent somehow manage to convince you to use that with-drawable portion of the cash to fund another plan. Well i've good news and bad news for you.

Bad News

Both plans are essentially saving plans/endowment with a different flexibility to it. The prusave you got yourself into is a non withdrawable plan and you have to ensure you pay until its maturity or if its a limited pay plan for etc 5/10 then you may stop paying for it on the fifth year but must wait until the tenth year before you can withdraw them.

In addition to this, your first one and the half year premium at least (depending on the tenor of your plan) that you payout from your flexicash into the prusave plan will be your commission to the insurance company, so instead of saving you've actually been feeding your agent over the current and past few years. Even if you may end up getting more than what you paid for when your plan is due, the money you saved over the years will be devalued by inflation (currently at an average of 4.2% p.a.) as saving plans/endowment plans are bad inflation beating tools, It's usually meant for richer people to do their legacy planning or company to use it for their keyman insurance.

Good News

Be glad that you're only paying $75/mth. I suggest in future to never take up such plan again. Treat it as a bonus saving 20+ years down the road and that you're insured while you save. If you are looking for protection, look at term insurance plan. The SAF Group insurance plan by AVIVA is one of the best in the market, although it doesnt provide you any returns, for $25/mth you will be covered for at least $200,000 a month for Death and TPD. Avoid tying yourself down with whole life plans or saving plans, insurance agents always play down the benefits of term insurance because it pays the lowest commission for them.

For savings, you might want to do a monthly saving into the STI ETF or look into unit trust in fundsupermart, these products have risk but it provides you the flexibility to save, stop and withdraw anytime without penalising you. Understand your own risk profile and read abt dollar cost averaging as a saving tool, the potential yield on a good balanced portfolio can beat the returns from the saving plans by miles anytime.

my two cents worth

 

[Hexagonal]

Yes, i understand what you are trying to say about BTITR.

Now i'm thinking of whether to bite the bullet and stop paying it.. or continue with it.

Now if i discontinued, i may lose all the premiums paid. Around 2K+..

If i continue paying, considering the opportunity cost of earning better returns if i buy a monthly STI ETF, i may end up losing more than 2K+ (as i could have earn more than 2K with another tool)

-
I still need someone to confirm my doubt if i will get higher returns if i use my yearly cashback to buy another PruSave plan. My guess is it will not, considering the deductions.....

Unhappy with how my agent sold it to me as "an upgrade with higher returns without any cost to me" My fault for not being savvy enough..

 

[nanotard]

My opinion is that you shouldn't discontinue because that would do you no good at this point of time. If you've already committed yourself to the plan then you should just see it through to the end. Your monthly premiums don't sound that high anyway. Consider it a war chest or something like that.

In the meantime you can also start regular STI ETF (like us in POSB InvestSaver thread).

I'm not good at the math so I won't be able to advise if the Prusave will benefit you more but I can say that it would benefit you more as compared to forfeiting everything.

No point in thinking about where this money could have been better spent and "opportunity cost". Take as school fees haha.

Just two cents from a newbie.

Edit: I also think you shouldn't view that 2k you /might/ have missed out on as a loss. That is kind of a fallacy of assuming projected possible paper gains as yours. It's never ever yours until it's in your hands. So you haven't lost anything. Maybe you gain less, that's all.

 

[mmlfreedom]

put aside BTITR.

let's break down the situation.

cashback interest currently is 3%.

1. Is the PruSave have a IRR of 3% upon maturity? same or more likely to have less than 3%.

2. having the same return or even less. Now your money is locked up in the PruSave policy wheares the cashback u can take out anytime.

"upgrade" or just the agent want to earn commission from you?

So do you think is ok? you have the answer yourself.

 

[anfielder]

Getting the PruSave gives you better protection compared to just having the PruCash. However in terms of return, I have my doubts.

 

[hwmook]

put aside BTITR.

let's break down the situation.

cashback interest currently is 3%.

1. Is the PruSave have a IRR of 3% upon maturity? same or more likely to have less than 3%.

2. having the same return or even less. Now your money is locked up in the PruSave policy wheares the cashback u can take out anytime.

"upgrade" or just the agent want to earn commission from you?

So do you think is ok? you have the answer yourself.

1. Confirm the Prucash, Pruflexicash, Prusave all have better than IRR of 3%, i remember it being 3.5-3.75% range.

2. The return on all these plans are the same, around 3.5-3.75%. Using the cashback from the 1st plan to buy the 2nd plan essentially just convert the Pruflexicash portion to Prusave where you cannot withdraw the money at all.

This is not an upgrade at all because the agent get less commission from the Pruflexicash as you can withdraw the money invested thus he/she introduced the 2nd plan to lock up the money so he/she can earn more.

TS, it make no sense to terminate the plan. You get a highly-secure risk free return of 3.5-3.75% which is actually comparable to 30-yr SGS bond yield so its not that bad a return for low risk investment. You should build your portfolio on top of this plan, since you already got some low risk investment then you should put more into higher risk return investment like STI ETF and higher risk bond funds etc. I also have a similar plan that i bought more than 10yr ago, mine is around $100 a month and get to withdraw $750 every year which i have been doing since a few years ago for my own investment. You are only paying $70+ a month which is really nothing, just keep it there.

 

[Hexagonal]

The thing is PruFlexiCash also have the option not to withdraw, and it was never my intention to take any cashback. Hence, why is there a need to eliminate my option to withdraw by introducing me another plan?

I'm assuming PruSave also give commissions to the agent and fees to the company.

..and if both works the same way in terms of getting the same returns, i would be worse off as i'm paying fee twice to the company.

Is my understanding correct?

 

[nanotard]

The thing is PruFlexiCash also have the option not to withdraw, and it was never my intention to take any cashback. Hence, why is there a need to eliminate my option to withdraw by introducing me another plan?

I'm assuming PruSave also give commissions to the agent and fees to the company.

..and if both works the same way in terms of getting the same returns, i would be worse off as i'm paying fee twice to the company.

Is my understanding correct?

If you're asking why is there a need, I think simply put, it's because they want to keep your money with them for as long as they can?

For the agent, the motive will usually to be fill one's own rice bowl with commission as much as they can.
For the company, the motive would be to take in your money for even longer so they 1) don't have to cough up that money to you YET 2) then take this money to make more money for themselves

As for worse off... I think it's a matter of perspective because you haven't lost anything but you probably mean you lugi more? Then yeah. You definitely lugi more.

Maybe its time to look around see if got better agent for you.

 

[hwmook]

The thing is PruFlexiCash also have the option not to withdraw, and it was never my intention to take any cashback. Hence, why is there a need to eliminate my option to withdraw by introducing me another plan?

I'm assuming PruSave also give commissions to the agent and fees to the company.

..and if both works the same way in terms of getting the same returns, i would be worse off as i'm paying fee twice to the company.

Is my understanding correct?

No, your understanding is incorrect. Its like paying $100 vs 2 x $50. What is the difference? No difference in end result so how can you be paying more?

You simply do not know how the agents are paid.

You paid $1000 in premiums, agent get $500. But in the Pruflexicash case, you can withdraw a portion as cashback so effective premium paid if like $500 so the agent get only $250. The agent therefore introduce you a plan to reinvest that $500 so he/she can a cut from this $500, say $250.

To you, you just lost the the option to get back the cash. To agent, he/she get more commission.

 

[Hexagonal]

hwmook,

It doesn't make sense. In your illustration, agent get a net commission of $500 irregardless of whether i did an upgrade.

If that is the case, both party doesn't benefit from it, but i lost my option of withdrawal. The only reason i could think of is the intention to lock me up with them until maturity.

 

[nanotard]

i think you don't understand. he's saying in your case, without the upgrade, your agent only got half the portion of commission because of your option to cashback.

when the agent managed to get you to upgrade, the agent got more commission.

but your last sentence is also correct

 

[FP_IFA]

You have to look at the BI to see what is the loss and gain.

If you do cashback on your PruFlexi, your final return is much lesser than if you don't touch the money.

So you have to compare what is the difference between doing a cashback and a non-cash back and compare the loss to whether if PruSave can make up the difference.

I suspect based on higher projection it will be a gain, but based on guaranteed value or lower projection the client will risk a loss.