Wednesday, April 19, 2017

Retirement income poilcy

I analyzed a retirement income policy recently and was surprised that it is just a fixed term annuity and not a life annuity. The yield on the policy is between 0% to 4%. (Actually, it is difficult to calculate the yield as there are so many uncertainties and variables).

The policyholder could have obtained a better return by investing on his or her own in an indexed fund.

What is the value of this retirement income policy to the consumer? Virtually none! It's value is to create a way for the agent to earn a high commission and the insurance company to make a large profit, at the expense of the consumer.


Spur said...

These days, my advice to Singaporeans is to NEVER buy ANY par insurance or investment-related products. Namely: wholelife, endowments, ILPs. The charges for them have been increased too much over the years, while performance has become worse. i.e. Insurance managers & salesmen are getting higher pay for lousier results. Which industry got this kind of salary framework?!?

Talking about retirement income, a few years ago, I compared NTUC Income's deferred annuity with CPF Life's Standard Plan. The CPF Life blew away NTUC Income's annuity like a machine gun against a knife. Insurance salesman will say CPF Life don't have inflation increase in the payouts, while their annuities have. But I looked at the NTUC Income's annuity Benefit Illustration, and this inflation benefit must be so expensive because the starting payout is just over 50% of what you can get with CPF Life. And you need to live until 90 yrs old before your total NTUC Income annuity payouts increased to match CPF Life's total payouts. Anyway CPF will soon be coming out with an inflation option for the CPF Life.

Insurance in Singapore is actually VERY affordable, IF you buy the RIGHT policies. The below can meet 90% of Singaporeans' needs:-

1. CPF's Dependent Protection Scheme
2. Mindef/MHA Group Term / CI / PA / Disability Income
You can also cover your spouse & children under this.
3. POGIS Public Officer Grp Ins Scheme -- if you're civil servant or working in stat board.
4. Low cost term insurance -- use to find.

5. Medishield Life -- cover govt hospital for C/B2.
6. Standard B1 Integrated Plan -- cover govt hospital for B1.

7. CPF's Eldershield -- forget about those extra top-up from insurance companies, not worth it.

8. CPF Life Standard or Basic plan.
In future will have inflation-linked plan.

9. CPF Special Account.
If you're cash rich, you can gift a lumpsum to your kid by opening CPF account for him and putting money into his Special Account. E.g. You put in $50K when your kid is 1-year old. When he is 55 yrs old, that $50K will have grown to almost $697,000 (using 5% compounded interest as the first $60K has extra 1% interest).

- The other advantage is that this money is protected from creditors & bankruptcy. And also your kid squandering away the money when he is still too immature to handle money responsibly.


Spur said...

Oh sorry, not $697,000 but instead it's about $515,000.

Becoz only first $60,000 compound at 5% interest. The rest compound at 4%. 1% makes a lot of difference over long time horizon!

Still substantial though --- confirm better than any endowment you can buy for your kid.

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