Skip Navigation Links
Retirement Policy
29 Jul 2022 (360 views)  

A customer (60 yo) bought a retirement policy from an insurance company. He has to pay a premium of $10,000 a year from 5 years. 

From age 65, the retirement policy has a cash value of $50,000. The policyholder can cancel the policy at any time after age 65 and take out the total premium that has been paid.

The annual payout from age 65 depends on the investment return earned by the insurance fund. The insurance company deducts 1% from the yield and pays out the balance to the policyholder. 

The illustration shows that if the yield is 3.25%, the policyholder receives a payout of 2.25%. If the yield is 4.75%, the policyholder receives a payout of 3.75%.

The insurance company guarantees a minimum payout of 1.25%. 

Here are my views about this policy.

a)   The surrender value with the first 5 years is quite low and is less than the premiums paid. The penalty is high for a surrender during this period.

b)  After paying 5 years of premium, the return is 1.25% (guaranteed) and would be higher if the insurance fund is able to earn a return of more than 2.25%. For example, if the fund earns 4%, the return is 3%.

c) The policyholder can surrender the policy at any time after 5 years, and get back the total premiums paid. He only lose the interest earned on the premium during the first 5 years. 

If the policyholder is able to invest the money on his own, he should be able to get a return higher than the return on this policy.  However, if the policyholder is not able to manage his own investments, the return on this policy is quite fair.

Tan Kin Lian


Retirement Policy
[Back] [Print]


A customer (60 yo) bought a retirement policy from an insurance company. He has to pay a premium of $10,000 a year from 5 years. 

From age 65, the retirement policy has a cash value of $50,000. The policyholder can cancel the policy at any time after age 65 and take out the total premium that has been paid.

The annual payout from age 65 depends on the investment return earned by the insurance fund. The insurance company deducts 1% from the yield and pays out the balance to the policyholder. 

The illustration shows that if the yield is 3.25%, the policyholder receives a payout of 2.25%. If the yield is 4.75%, the policyholder receives a payout of 3.75%.

The insurance company guarantees a minimum payout of 1.25%. 

Here are my views about this policy.

a)   The surrender value with the first 5 years is quite low and is less than the premiums paid. The penalty is high for a surrender during this period.

b)  After paying 5 years of premium, the return is 1.25% (guaranteed) and would be higher if the insurance fund is able to earn a return of more than 2.25%. For example, if the fund earns 4%, the return is 3%.

c) The policyholder can surrender the policy at any time after 5 years, and get back the total premiums paid. He only lose the interest earned on the premium during the first 5 years. 

If the policyholder is able to invest the money on his own, he should be able to get a return higher than the return on this policy.  However, if the policyholder is not able to manage his own investments, the return on this policy is quite fair.

Tan Kin Lian