Wednesday, May 18, 2016

Prestige Life Rewards

I was introduced to this new and wonderful product by a Great Eastern Agent. Don't invest in property, invest in Prestige Life Rewards (PLR) by Great Eastern. This works like property investment, only better!

Wow - is it true?

Because this agent is a friend, I am open to hearing more, and I was promised an analysis between property investment and PLR. As I have a HDB, the comparison will be between the 2.

As I receive the analysis, I opened it up, and was immediately sold by the great benefits of this product. Let me share it with you.

Actually I was being sarcastic. These kind of "analysis" actually pisses me off more than anything.

The analysis is quite biased and did not present a balanced view of both products. There is only the supposedly good points of the product and the cons of property investment – to me, this is more a sales pitch than any fair analysis

For example, and just to name a few:

(1) There was mention of an upcoming oversupply of HDB flats. This failed to mention the governments intent of increasing population in Singapore.

(2) Failure to mention that we are in a rising interest rate environment, which would adversely affect the product (given the element of premium financing).

(3) ABSD was mentioned that is incurred in purchasing a property – a noticeable omission was the mention the equivalent distribution cost associated with purchasing the PLR?
This to me gives a very indication of where the 'advisor's' interest lies - whether in providing an unbiased comparison of 2 products, or only interested in talking up 1 particular tied product. I think the answer is very obvious.

Fortunately, I also received the Benefits Illustration. This is a product that has an element of premium financing. That is, I put in an initial $800,000 (based on my property value) for a total premium paid to Great Eastern of $2,392,912

So I compared the cash bonus (or passive income goes the sales pitch) vs the net rental

It is obvious to me that rental income from the HDB yields overall better passive income. And I need to remind myself that the passive income from PLR has the added advantage of leveraging, and the indicative rate is the higher end rate with 2% borrowing cost constant. How true is that? I will leave you to judge.

For transparency, I am using a monthly rental of $2,500 - given a 5 room HDB in Bukit Merah, rental increasing at 2% p.a, y.o.y. In URA's website, we can see that the rental at 2007 is approximate $2,000 vs $3,000 in 2016. Instead of the 4% increase, I used a more conservative rate of 2%.

The surrender value of the HDB (sale in this case), vs the PLR is quite different though as there is an element of leverage. If all goes well at the end of 40 years (at 4.75% rate by Great Eastern), the surrender value is $2,615,066. Would my HDB be worth the same 40 years later? Probably not. However, this is not an apple to apple comparison, given the leverage involved.

What would be more comparable is if I sold my HDB and purchased 2 properties with leverage. In that case, I am sure the pay-off changes again.

Is it a good product? Did I bite?

No - qualitatively, I doubt that the motivation of the 'advisor' is for my well-being. Quantitatively, PLR takes a higher risk profile as an asset and still fail to beat the passive income element.

I did not thank the agent for introducing this product as I felt like I wasted time analysing on an inferior product. Thinking back - perhaps I should thank the agent, because it gave me a topic to write upon.

It really drives home the point of how no one cares for your money more than yourself.


  1. hi dowz,

    i have a question, is this a partcipating endowment or a crediting rate endowment.

    these form are essentially like a unit trust where you transfer the investment risk to the insurance company.

    i see the main benefit as being passive and protection against cognitive decline.

    1. Hi kyith - this is based on participating funds. I am ok that this is passive and protection.

      However, I am very against the idea that an 'advisor' pitches this as a substitute to a property investment, and provides such an obviously biased 'analysis'.

      Sell me a product factually and correctly instead, and I might buy.

      Re unit trust - I agree. However, a pure ETF portfolio would likely outperform this product. An initial outlay of 800k at 7% annually would return approx. 12mil at the end of 40 years.

      I will be doing another comparison of PLR soon

    2. this is a transfer of risk and once the bonus is declared it accumulates value.

      such a product is meant more to keep purchasing power but also to provide a more consistent distribtion.

      you might not achieve that with an ETf portfolio due to the volatility. when you drawdown when your portfolio is 50% down it can be rather challenging for your portfolio to go up.

      it is like property investment due to its nature so thats why they are comparing against that.

    3. Good point and agree it is similar in that the similarity is as you mentioned, as well as it is better in terms of liquidity. Property cannot be cashed as easily. It should be sold on this basis rather than sold as an alternative to property with better returns though

    4. it should be sold with similar charateristics but as an alternative. but isnt the case all wealth builders want to know what offers better return but lower risk

  2. Hi Dowz. I too was introduced this policy by a friend agent. Was told similar analysis as did your friend. Can you kindly explain the following to me?

    "This is a product that has an element of premium financing. That is, I put in an initial $800,000 (based on my property value) for a total premium paid to Great Eastern of $2,392,912"

    I was told all i need to downpay is a single lump sum. Are there any hidden cost involve?

    Looking forward to your reply!

    1. Hi Dennis - the 'hidden costs' are actually in plain sight. Ask about the distribution costs of the product. Ask how much commission your agent makes from the sale to you. Ask what is the financing cost for the premium financing... and the exchange rate (if it's USD).

      Given that interest rate is rising - what is the impact on your cash flow back, especially the financing part?

      The returns of the product needs to be significantly more than the cost of the product (commissions, FX rate, interest rate and the product management fees - that which you need to pay the fund managers etc).

      With returns going down, costs going up - who knows how much you can get back? Of course, when trying to make a sale, the agent will paint an extremely rosy picture.

      Hope it helps.

  3. Hi Dowz,
    Stumbled upon your article while helping my parents do research on PLR.
    This was recommended by an agent, who is recommending PLR as a form of "passive income" for my parents in their retirement years (they are in early 60s).

    The money will be coming out of their CPF OA. Would this be something you would recommend for elderly who do not know much about investing?

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  5. If you are a property investor or have interest in building assets for the long run, such leverage are good debts to have. In a rising interest rate environment, *everyone* is affected. So it is not exclusive to just PLR. Good points on ETFs. However, it might not be a strong comparative point. Instead of either/or, why not both? Diversification is key. If 800k is too much cash outlay, would 400k be a more comfortable amount? Ultimately it is dependent on objectives. For strong cashflow with relatively limited downside, it is a good supplement to have in your retirement Kueh Lapis especially when you have a long runway. Definitely beats all the savings plan out there. Don't be blinded by how much an agent make but what's in it for you. Being excessively righteous do not put food on the table. Cheers.