Prulink Protection Account

I have encountered too many insurance agents who deliver financial plans without knowing what they are selling. Most of the time, I have to find my own answer about how the insurance company charges their clients from everywhere except the agents. And I know that insurance policy is never worth your money unless you get lucky to be hit by capital illnesses, or hospitalized, etc.

The latest policy that I'm scrutinising is PruLink Protection Account. My wife bought it with the intention of financing it using her PruCash cashback and additional monthly payment.

The policy promises investment return in the long run while giving us the policy holder protection right now. To justify the cost of protection, 85% of our premiums for the first year will be used to offset distribution cost, and the remaining 15% will be put in our funds account to invest in a chosen fund, which is Singapore Managed Fund for my wife's case.

For second and third year, the proportion for investment will grow to 50% of premiums paid, and from fourth year to ninth year, it will be 100% of premiums paid. Then the policy states that for 10th year onward, the insurance company will even top up our investment to 105% of premiums paid.

What is not stated clearly is that the "assurance charges" for death, TPD, TI, and crisis cover, payable every month, will be taken from the funds account. The assurance charge per $1,000 sum assured starts from $0.74 at age 26, to $86.25 at age 85, to $254.68 at age 99.

That means, if you're still covered at age 99, expect to pay $1699 of assurance charges per month for $80k sum assured! Of course, most people will not live to that age or will have cashed out by then. Anyway, currently the assurance charges including administrative cost for my wife's Prulink Protection policy is $14.86.

So for this first year, my wife will pay monthly premium of $100, in which only $15 will make it to the funds account. Then I discover that the units are immediately redeemed with 5% of its value shed because of the bid-offer spread, to pay for the assurance charges. But the redeemed units are only worth $14.25, which is not sufficient to pay the assurance charges! So we have to top up cash for the difference of 61 cents.

If you have not realized by now, did you see how the $15 just made a futile trip to the funds account and losing 5% of its value in the process? In so doing, our $15 became insufficient to pay for the $14.86 assurance charges.

Now here's the twist - if we could first pay the assurance charges with our $15 premium, then investing the balance, our funds account would have 14 cents in the black instead of 61 cents in the red at the end of the day. Simply reversing the process will earn us 75 cents per transaction :)

To give some sense to the process, I strongly urge Prudential to take the assurance charges from the premium paid, instead of trying to recover it from the units, as long as premiums are being paid. That'll mean more work to Prudential, but consumers will like you for doing it for them. And isn't that what Prudential wants us to believe? O... Prudential has no tagline for consumers?