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Retirement income policy
19 Apr 2017 (73 views)

Several insurance companies have introduced a life insurance policy to provide an annuity. I analyzed a policy recently and found that it was NOT a life annuity. It was only a term annuity. The annuity income is payable fo 15 or 20 years.

The policy had high upfront charges and terrible surrender values. The policyholder will find that two years or more of the premiums are eaten away from these high upfront charges.

There is virtually no life insurance cover. In the event of death, the payout is likely to be the total premiums paid plus a small addition, representing a yield of between 0 to 4%. 

The retirement income represents a yield of between 0 to 4% of the premiums paid, depending on the age at death. If the policyholder survives to the end of the annuity term, the yield is slightly lower than 4%.

The yield of 0% to 4% is not guaranteed. A large part of the payout comprised on non-guaranteed bonus that can be cut at the discretion of the insurance company. If the non-guaranteed portion is cut, the yield will be lower. 

There is also the possibility that the non-guaranteed payout can be higher, if the investment yield is higher. However, this is at the discretion of the insurance company and is beyond the control of the policyholder.

As there insurance company does not provide any coverage for longevity, the retirement income policy does not really give any "insurance protection" to the policyholder. The policyholder can invest his or her savings in an index fund and get a higher return than the insurance policy. 

It does not make sense for the consumer to buy a retirement income policy and suffer the following disadvantages:

1) A few years of premium is eaten away in upfront charges
2) The surrender value is terribly low
3) There is virtually no insurance protection in the event of premature death or the retirement income is discontinued after the fixed term. 
4) At best, the yield is lower than 4%.

It is better to invest on your own in an index fund.

Tan Kin Lian
 


Retirement income policy
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Several insurance companies have introduced a life insurance policy to provide an annuity. I analyzed a policy recently and found that it was NOT a life annuity. It was only a term annuity. The annuity income is payable fo 15 or 20 years.

The policy had high upfront charges and terrible surrender values. The policyholder will find that two years or more of the premiums are eaten away from these high upfront charges.

There is virtually no life insurance cover. In the event of death, the payout is likely to be the total premiums paid plus a small addition, representing a yield of between 0 to 4%. 

The retirement income represents a yield of between 0 to 4% of the premiums paid, depending on the age at death. If the policyholder survives to the end of the annuity term, the yield is slightly lower than 4%.

The yield of 0% to 4% is not guaranteed. A large part of the payout comprised on non-guaranteed bonus that can be cut at the discretion of the insurance company. If the non-guaranteed portion is cut, the yield will be lower. 

There is also the possibility that the non-guaranteed payout can be higher, if the investment yield is higher. However, this is at the discretion of the insurance company and is beyond the control of the policyholder.

As there insurance company does not provide any coverage for longevity, the retirement income policy does not really give any "insurance protection" to the policyholder. The policyholder can invest his or her savings in an index fund and get a higher return than the insurance policy. 

It does not make sense for the consumer to buy a retirement income policy and suffer the following disadvantages:

1) A few years of premium is eaten away in upfront charges
2) The surrender value is terribly low
3) There is virtually no insurance protection in the event of premature death or the retirement income is discontinued after the fixed term. 
4) At best, the yield is lower than 4%.

It is better to invest on your own in an index fund.

Tan Kin Lian