Question: “Hi Wilfred, due to family history, I am looking for a life insurance which will cover me for entire life upon major illnesses like cancer. My financial adviser recommends the Prudential PRUlink protection plus account. I read in the forum that the charges of an investment linked policies increases with age and will lapse when I am unable to pay the high charges. My adviser told me that as long as I pay my premium, the policy will not terminate. Is this a suitable product for me?”
Answer:
Based on the benefit illustration which you provided me, the coverage recommended was:
Death: $55,000 plus cash value of units
Crisis Cover Provider III: $110,000
Annual premium: $1,860
High insurance charges of the PRUlink protection plus account
With regard to the high charges, this is true especially when you are old. The following is a table summarizing the projected insurance charges based on male and non-smoker:
| Age | Death charges* per $1000 sum assured $ | Critical illness charges* per $1000 sum assured $ | Annual charges $ | |
|---|---|---|---|---|
| 57 | 8.35 | 10.26 | 8.35 x 55000/1000 + 10.26 x 110000/1000 = | 1,587.85 |
| 58 | 9.32 | 11.39 | 9.32 x 55000/1000 + 11.39 x 110000/1000 = | 1,765.50 |
| 59 | 10.39 | 13.08 | 10.39 x 55000/1000 + 13.08 x 110000/1000 = | 2,010.25 |
| 60 | 11.57 | 14.73 | 11.57 x 55000/1000 + 14.73 x 110000/1000 = | 2,256.65 |
| 70 | 28.68 | 37.36 | 28.68 x 55000/1000 + 37.36 x 110000/1000 = | 5,687.00 |
| 80 | 72.44 | 66.69 | 72.44 x 55000/1000 + 66.69 x 110000/1000 = | 11,320.10 |
* Insurance charges can be found in the PRUlink protection plus account benefit illustration which you had provided to me.
As it can be seen that the insurance charges exceeds the premium you are paying when you are 59 years old. The shortfall in premium has to be funded either by selling the investment units or by you topping up the difference.
As you get older like 80 years old, the PRUlink protection plus account charges are projected to reach $11,320.10 a year! The question is whether can you afford to pay this huge premium at such an old age? How confident are you to get good returns from the underlying investments? What happens if there is another financial crisis when you are old? You could end up with a double whamming – investment losses due to market condition and huge liquidation required to fund your premiums.
No Lapse Period is not for life
According to the benefit illustration you provided me, the no lapse period of the PRUlink protection plus account is actually the first 5 years of the policy. No lapse period means your policy cannot terminate provided you pay for the premium and did not withdraw any of the units during this period.
What is really needed is the no lapse period to be after 60 years old when the charges rise above the premium you are paying! Hence, what your adviser told you about not able to lapse the policy as long as you pay the premium is only half truth. What he did not tell you is that you must be able to afford to pay the increasing premiums!
As you have a family history of major illnesses and your desire to look for a product that can cover for life, the PRUlink protection plus account is not a suitable product since you have no assurance of lifetime cover. A more appropriate product is a whole life policy and one preferably with guaranteed but limited paying premiums.
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