Are annuity plans which are non-investment linked, a better alternative in planning for your retirement ?
In what ways are they different from life insurance products?
The Consumer Council has conducted a survey on 9 insurance companies offering this relatively new emerging product of annuity plans to prospective clients with retirement planning in mind.
In brief, annuity plans seek to offer you a stable cash flow after your retirement - in the case of a lifetime annuity plan a monthly income for as long as you live.
You can also opt for fixed period annuities with 10 to 20 years of income period.
In the survey, only 1 insurance company offered lifetime annuity plan while others were fixed period annuities. Generally the greater the protection and the longer the income period, the higher the premiums paid.
While life insurance policies protect you against mortality risk, annuity plans protect you against longevity risk.
It's never too early or too late to plan for your retirement. The survey showed that the range of insured age could be as young as 15 days after birth to 70 years of age.
The minimum monthly premium is in the range of $700 to $1,988. For those who opt to pay annually, the minimum premium is between $4,000 to $22,834.
Normally, the income provided by annuity plans consist of two parts: the fixed guaranteed income portion and the non-guaranteed income portion.
Consumers need to take into account that the income might be eroded by inflation if the average inflation rates increase more than expected, lowering the future purchasing power.
As with other financial investment products, consumers when contemplating the purchase of annuity plans should consider their long-term financial situation such as earning ability, required expenses and expected retirement age, etc.
Consumers are also reminded of the provision of the cooling-off period in annuity plans within which they can choose to change their purchase decision.
The Consumer Council reserves all its right (including copyright) in respect of CHOICE Magazine and Online CHOICE ( https://echoice.consumer.org.hk/ ).