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PruGolden Income Plan
05 Apr 2017 (49 views)

The policyholder took the policy at age 44 and is required to pay an annual premium of $6,273 for 14 years until age 58.

From age 63, the policyholder receives an annual income that comprise of a guaranteed sum and a non-guaranteed sum. The total income starts at $10,800 at age 63, drops to $9,160 at age 64 and increases yearly to $13,260 at age 81.

The surrender value of the policy is very bad. At any point of time prior to age 62, the policyholder would have suffered a large loss if the policy is surrendered. The surrender value is very much lower than the total premiums paid. The policyholder is locked into the policy and cannot surrender it without a large loss.

In the event of death prior to age 62, the death benefit represents a return of the premium together with a small addition that represents a yield of less than 4%. 

On death after age 62, the policyholder would have received some annuity payments together with a death benefit. The yield on the policy varied from 0% to 4%.

The annuity is payable over 20 years and NOT for a lifetime. If the policyholder (or annuitant) survives the 20 years, the yield would be about 4%.

The yield of 0% to 4% is based on the projected payment. A large part of the payment is NOT guaranteed. If the payment is cut due to lower investment yield or other reason, the policyholder would have received a lower yield. The current yield of 0% to 4% is already quite low. If the projected payout is reduced, the yield will be even lower. The risk of a reduction of the projected value is quite real and has occurred in past years.

On the other hand, there is the possibility that the projected payout will be higher, if a higher investment yield is earned by the insurance company. However, the payout will be up to the discretion of the insurance company and is beyond the control of the policyholder.

The actual payout under the policy is quite complex. To calculate the yield, it is necessary to use the IRR function of Excel and to work out the cash flow over the 45 year period under various ages at death.. 

The policyholder could have invested his premium in an index fund, such as the STI ETF. If the index fund earns 4% per annum, the investor would have received the return that is projected under this policy. In the event of death, the residual value from the investment in the index fund would  be higher than the surrender value in most cases. 

If the index fund earns a higher yield than 4%, the residual value in the index fund would have been much higher. In the past years, the yield on the index fund was over 9%.

CONCLUSION
The policyholder would have been better off by investing the savings in an index fund, such as the STI ETF, rather than a retirement income policy such as the PruGolden Income plan. 

Most of the retirement income policy offered by other insurance companies have features to the PruGolden policy. The policyholder should make a study before committing to this policy. After taking up the policy, the policyholder is stuck and has to continued the policy to the maturity date, getting a poor and uncertain yield.
 


PruGolden Income Plan
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The policyholder took the policy at age 44 and is required to pay an annual premium of $6,273 for 14 years until age 58.

From age 63, the policyholder receives an annual income that comprise of a guaranteed sum and a non-guaranteed sum. The total income starts at $10,800 at age 63, drops to $9,160 at age 64 and increases yearly to $13,260 at age 81.

The surrender value of the policy is very bad. At any point of time prior to age 62, the policyholder would have suffered a large loss if the policy is surrendered. The surrender value is very much lower than the total premiums paid. The policyholder is locked into the policy and cannot surrender it without a large loss.

In the event of death prior to age 62, the death benefit represents a return of the premium together with a small addition that represents a yield of less than 4%. 

On death after age 62, the policyholder would have received some annuity payments together with a death benefit. The yield on the policy varied from 0% to 4%.

The annuity is payable over 20 years and NOT for a lifetime. If the policyholder (or annuitant) survives the 20 years, the yield would be about 4%.

The yield of 0% to 4% is based on the projected payment. A large part of the payment is NOT guaranteed. If the payment is cut due to lower investment yield or other reason, the policyholder would have received a lower yield. The current yield of 0% to 4% is already quite low. If the projected payout is reduced, the yield will be even lower. The risk of a reduction of the projected value is quite real and has occurred in past years.

On the other hand, there is the possibility that the projected payout will be higher, if a higher investment yield is earned by the insurance company. However, the payout will be up to the discretion of the insurance company and is beyond the control of the policyholder.

The actual payout under the policy is quite complex. To calculate the yield, it is necessary to use the IRR function of Excel and to work out the cash flow over the 45 year period under various ages at death.. 

The policyholder could have invested his premium in an index fund, such as the STI ETF. If the index fund earns 4% per annum, the investor would have received the return that is projected under this policy. In the event of death, the residual value from the investment in the index fund would  be higher than the surrender value in most cases. 

If the index fund earns a higher yield than 4%, the residual value in the index fund would have been much higher. In the past years, the yield on the index fund was over 9%.

CONCLUSION
The policyholder would have been better off by investing the savings in an index fund, such as the STI ETF, rather than a retirement income policy such as the PruGolden Income plan. 

Most of the retirement income policy offered by other insurance companies have features to the PruGolden policy. The policyholder should make a study before committing to this policy. After taking up the policy, the policyholder is stuck and has to continued the policy to the maturity date, getting a poor and uncertain yield.