I was reading all the comments and I see there are differing views. No right or wrong but which solution is the most suitable in my opinion.
My belief is that there is no best product but better ones out there that cater for different needs and profiles. If not everyone will ending up with that.
I'm in no way represent Prudential. However, assuming that you were not mis-sold, there could be several reasons why you purchase the product. It could be due to the simplicity of the product and perhaps it takes your worries away from high risk investments which you do not have the knowledge or understanding. Could be you like the fact you dont need to do anything and let it compound and as a low risk but low to mid return instrument. Or probably for legacy planning for future family uses.
People buy insurance plans like endownment plan at different stages of life. Even investment bankers I know have endownment plans. If we compare it to investment, endownment plan will seem like a loser. However, when compared to fixed deposit or savings account, this perhaps could be a winner. Different perspective. I see that the initial capital outlay is not alot and coupled with the limited payment term, it takes the liability off you and it can auto pilot and compound interest.
It is also about asset allocation. Start with small amounts here and there in different instruments would allow you to gain confidence.
The other worry i see from the thread is that non guaranteed bonus will not be paid out. In addition, why the surrender value is so low. Let me attempt to address the safety of the plan first. Although the plan invest into a par fund, it has to maintain a capital adequacy ratio that is prescribed by MAS and the actuary will have already done all the stress tests. Moreover, different par funds do not co-mingle with each other. In addition, there are many safety levels in place in case the insurer goes into liquidation, which is going to be a lengthy explanation, and I shall not elaborate more.
For the 4.75%, by no means it is the highest returns to the par fund. Whether the insurer achieve the desired returns or not, it is mandated that they give out at least 90% of the profits. Shareholder's funds and all will come into play. Once the non-guaranteed bonuses are declared, it will become your guaranteed amount. It will be good to ask Prudential customer service or login to your customer's portal to obtain the latest policy value. Your guaranteed shouldn't be as illustrated in the policy document.
As much as possible, the insurer will try to deliver the returns and if they cant, they can use their coffers from previous years that they have accumulated to buffer. This is what came to be known as smoothing of bonuses. As the insurer is also not immune to adverse economic situations, they like the banks or fund houses will also suffer losses. That is when insurer has to cut bonuses.
Why the surrender value is low in the initial years is due to the distribution costs that might include commissions, promotions, cost of setting up par funds, compliance, etc. There is definitely a trade off in terms of returns but unlike pundit in stocks and all, insurance policies look at long term time horizon and customers must be prepared not to be bothered by the initial low surrender values. Of course we should also mitigate this issue by putting spare cash and have a budget.
In all, if you need more info, do let me know. I am currently running a Financial Practice dealing in Life & General Insurance, Mortgage Loan brokering, Wealth Preservation & Accumulation, Incapacity, Old Age Provision Planning & Estate Planning.
