Whole of Life: Pruprotect vs Pruprotect Essentials Plan

carteruk

I'm in the process of getting a lump of whole of life cover for me and my wife given we are are still young. my thoughts are that we will always want some cover in the background so this is a bit of protection for mortgage at the moment converting into a nice gift for the children when we die.

I wont go into specifics but time and time again the pru come out with quotes towards half of the other providers (L&G, Zurich etc).

they appear to offer 2 plans, the 'normal' one and a stripped down 'essentials' plan. both guaranteed premiums

Looking at the documentation for a basic WOL policy am I any worst off with the Essentials version??
also the am i right to assume guaranteed premiums are for the full durations? ( i figure inflation will in time reduce the 'real cost' year on year)

I've attached a copy of the side by side comparison(snag.gy/FTdvk.jpg) - most appears to relate to CI and underwriting cover.

dunstonh

Things to consider with WOL plans are the periods you will pay premiums. Many have a maximum age after which you retain benefits but no longer pay premiums. Some allow limited periods of payment (which can be useful to get rid of capital now or over a short term period) whilst retaining benefits for life. Guaranteed insurability options are important. Personally I prefer non investment linked versions as well although some like investment backed ones.

What has been your research to come out with Pru or are only basing it on price? Have you researched whole of market or limited panel?

carteruk

price is the dominant factor here - point noted on insurable options. my line of thought is however that anything else in the future we we get as a 'bolt-on' under a separate policy via term assurance. A base level of 100k will provide piece of mind for us each through our lives.

to put this in perspective it is around £20p/m for each of us. we are 27 years old. everywhere else I can find come in at the £50 mark each.

my sums are £40p/m, 60 odd years, around 30k. potential payout 200k.

appreciated 200k wont be as much in the future as it is today but it something most family's wont have to give their children.

OshayAway

If price is a dominant factor here, presumable so is value? In which case you might want to consider inflation-proofing your cover with indexation. This is especially relevant with long term or WOL plans.

In which case, you might want to look into the various forms of indexation applied to benefit and premium as different methods vary and impact on the future value of cover. This is exacerbated, the longer the cover lasts.

For example, a plan that does not load the indexed premium higher than the benefit amount may well be cheaper in the long-run (possibly in relative short-term) even though the initial premium is a little higher.

In relation to your question about PruProtect's standard and Essential cover. Variations include flexibility options - which can prove very valuable - and (I think) the vitality system that can reduce your premiums significantly and give other rewards.

dunstonh

Why would a 27 year old require a whole of life assurance policy?

cynic

BECAUSE IMHO
the pruprotect/pru essentials whole of life policies are about half the pice of any other WOL policies from any other providers.
WOL in this country is like a small part (<10%?) of the Life market and mostly used by well-off older people to protect their assets i.e. has big big margins little volume. Apparently thru their experience with Discovery Arm in South Africa they are now happy to use a pretty aggressive pricing model vs other participants....(key to this is their database telling them that the average period a WOL policy is actually held for is only about 7years)
They started this aggressive pricing maybe 2years ago (sadly prices now edging up so discount may only be about 30% vs market)
I'm 38 and if i live to 90 their premiums (calculated two months ago before most recent hike) represent a 5.9% return (non-adjusted) on investment (if JLSD with my 36 yr old wife thats a 6.7% return over same timescale).

Obviously there is some credit risk with that long term an investment but with long rated Pru bonds yielding about 6%:
a) this tells you it's not a ridiculous promised level of return that has no hope of actually panning out (i.e. Equitable Life level of promise)
b) you are essentially getting the life insurance for free (providing you don't mind your beneficiaries kids actually making the return!)

PS My understanding is that Indexation can often incur annoying admin charges e.g. 2.5% each time, which cld quickly blow away any returns.
This makes sense as any time you let a company adjust your premiums they are gonna try and take some margin, so I wouldn't bother - just do some scenarios yourself and increase your cover level at the start

weighty1_2

You are right in regards to the indexation, which is RPI +2.5%. PruProtect illustrations actually give future projections of premiums and benefit amounts based on the estimated increases and it starts to make for pretty grim reading after about 20-years.

The Essentials plan removes the insurability options so it depends on whether you are likely to want to increase the level of benefit in future years, should an insurability event occur?

I recently arranged a large WOL plan via PruProtect and due to the restrictions/capped increases there was very little value in the Standard Plan over the Essentials plan, but a fairly large price difference, so as normal it comes down to individual want/need for a feature to be included or not.

Other than the removal GIO's I am almost certain there are no differences between the plans, certainly with life cover only policies.

I've often thought of going down this route myself, in regards to "wealth creation".

cynic

Weighty re welath creation:

Big Q for me is if you generously insure on this WoL basis, will there be a point say in retirement when you can spend your estate (or above) cos you know your beneficiaries will get the insurance payout when you die?

At present doesn't seem any easy way to crystallise the value of a WoL policy ahead of time - no real second hand market (if there was you wld want to be careful who you sell it to!); being able to take on new debt then is unlikely also (as most lenders won't lend if you older or at least not in the size you require) except through equity release products (these are also priced around 6% so you giving up your return then and also likely won't be able to access decent percentages of equity). So only real method wld be to downsize your property

I have been looking at various houseprice vs CPI inflation scenarios as from 2015 the nil rate band threshold for IHT will be linked to CPI Obviously later governments cld alter this (the Tories generally raise it quickly, Labour let it lag - Gordon loved his fiscal drag!) but long-term it seems to follow a level v.approx 1.5x average house price), to try and guage appropriate cover levels that wld leave you in a position where you may actually be able to benefit yourself, but all about how you might actually generate some cashflow then
Pretty complicated stuff!

thanks for pointing out to check GIOs

weighty1_2

Cynic,
You may have to recalculate your returns. PruProtect went gender neutral on their WOL plans today. Based on the client who's plan I recently placed into effect the premium has increased by almost exactly 25%!!!

This is for a male client also. I had been hoping that male life premiums would come down slightly, at least until I-E came into effect in a month or so. They are still only priced at about 75% of their nearest competitor (based on guaranteed, non-investment linked plans) but still, it's not quite the attractive proposition it once was.