Should we surrender the PruWealth Plan? - Seedly
 

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Asked by Anonymous

Asked on 06 Aug 2019

Should we surrender the PruWealth Plan?

My other half bought a PruWealth Plan (SGD) in 2016 June and will have to pay $300 monthly for 10 years. Should I ask her to surrender and invest the monthly $300 in stocks, ETF or others instead? Even SSB at 2% yearly is better than this. She couldn’t give me any info when I asked for more info so I googled and found a chart that says it will only make around $2k on year 15 on guaranteed return, anything before will be a loss. If she surrenders now, she'll probably will lose $6k. Please advise.

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Ming Ann
Ming Ann
Level 3. Wonderkid
Updated on 14 Aug 2019

The first step would to be find out why did she bought it in the first place (i.e the objective). Then ask will this plan help in terms of your financial goal ? Pruwealth generally are giving more benefits in the later stage of life because of the compounded interest from the bonuses. One factor to consider is that also the age she is currently. For example, if she is at her 20-30s that range, you will notice that PW gives considerable returns at older age more towards retirement.

Investing in stock of course will generate more returns generally, but of course the risk is also a factor to take note about. SSB is very hard to compare in terms of apple to apple because SSB only last for 10 years max while PW doesn't work that way.

My suggestion is that, if you are not surrendering this plan mainly due to budget constraints, can do both ways, whichever works better after a period of observation then you can switch accordingly. I think that PW is a good tool when you factor in your retirement planning because you get to choose your own maturity date

Ultimately, if the product suits your financial goals, then it might be worthwhile to continue.

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Joyce Chan
Joyce Chan

14 Aug 2019

Great and balanced perspective from Ming Ann. This plan is meant for longer term returns and gives good returns compounded from the bonuses. It is a lot lower risk (as compared to the more volatile stock market) and there's no harm having a mix of assets with different risk profiles in your overall retirement plan to help you weather market turbulence.
Elijah Lee
Elijah Lee
Top Contributor

Top Contributor (Nov)

Level 10. Unicorn
Updated on 08 Aug 2019

PruWealth is capital guaranteed after a certain number of years, so the downside protection could afford you a peace of mind. However, to say that the money is better invested in stocks, ETF or other asset classes is not painting a complete picture, sure, the potential returns could be higher, but always remember that such asset classes, while giving you the returns of the market, also give you the losses of the market. While investing in high risk, high return instruments like stocks/ETF, always remember you have to hedge your bets by ensuring that a portion of your monies are in safe/guaranteed asset classes.

Seeing as how the PruWealth was bought in 2016, she has another 7 years to go, and you should ask her if the plan fits her financial objectives. You are right to say that an early surrender will result in financial losses, as such plans are structured to be held for a long time. If $300/mth is not a drain on your resources, it would be best to finish the premiums and then hold on to the plan, letting it compound.

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Question Poster

08 Aug 2019

Ya 7yrs to go and after that have to hold for another 10yrs just for a guaranteed breakeven. Long weekend coming up, will do some maths n see how it goes from here. Thanks guys!
Alan Kor
Alan Kor
Level 6. Master
Updated on 10 Aug 2019

Your other half knows how pruwealth works? Does she knows how to calculate the returns from the Benefits Illustration? If she doesn't know, why would she get something she does not understand?

The rule is never to mix insurance with investment.

Your options is either to

1) cut loss early or

2) sunk in the $300 monthly for mediocre/negative returns in a long long time. You will also lose out the $300 opportunity costs monthly to invest in the stock market if you continue to hold the plan.

DYODD.

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Question Poster

10 Aug 2019

Done my maths, gonna surrender it. ;)
Alan Kor
Alan Kor

10 Aug 2019

Good for you, remember to never mix insurance with investment.

This is an alternative to CPF SA if you are looking at accumulating. I have done similar IRR calculations and it grow at 4% p.a if you hold it long enough for 30 years.

First and foremost, you could look at it as a bond component (moving forward) instead of surrendering, because you are potentially losing 50% of your premiums paid.

Can investing through DCA gives you higher returns for a better Alpha or Beta? Can you accept the risk? Are you satisfied that you truly wish to surrender?

Do let me know if you wish to surrender as I can offer a higher surrender value than the insurance company. Most other Reps Holdings and all may not wish to buyback your policy because its not capital gauranteed (needs to reach 10th year).

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Loh Tat Tian
Loh Tat Tian

14 Aug 2019

I have 95% confidence that it will be at least 3.5%. That 5% confidence is due to prolonged economic recession, which even investment cannot gaurantee. I use ZenWealth to calculate. But its better to use a financial calculator using cashflow mode. MoneyChimp is also good, but how do you do TVM for non-regular cashflow? Your benefit illustration should have the figures for you to derive the IRR.
Loh Tat Tian
Loh Tat Tian

22 Aug 2019

Anyway, I have said my piece. If you are really really looking into surrender, I provide a 1 stop platform for surrendering at the 2nd hand Market.