Archives For insurance planing

Deferred Annuity or PRS? which is the best option?

Few weeks ago someone asked me this question through my Facebook private massage. So i try to best to keep it very simple so it is easier for her understanding.

 

1) The major difference you can find between PRS and Deferred Annuity?

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2) The PRUretirement Reward

pruretirement reward

3) Capital guarantee

One of the feature i like about deferred annuity is the capital guarantee. From the table breakdown you can see under the green column the guarantee income payout during your retirement is very close to the total premium paid over the years.

base on this projection, you are guarantee to receive RM7,066/year which mean you will get monthly income of RM588 directly bank in to your account.

Look at deferred annuity as you safety net. If the investment fails, you won’t hit rock bottom because your retirement fund will be  there for you when you need it.

4) higher return with no downside*.

sound to good to be true. but is it is. The Premium paid is guarantee Preserved and yet you still can tap into higher investment return. As shown in the table,

 

  • investment return (x), 

total premium paid = RM108,000.

total return = RM376,777.

annual rate of return 7.34%

 

should it goes below expected return,

  • investment return (y),

total premium paid = RM108,000.

total return = RM168,514

annual rate of return 2.8%

5) Force Saving.

Which type are you?  The Spend first or Save first.

forced saving

i love the idea of force saving when it come to saving for retirement. Base on statistic, 95% of the people with the tendency of spending their income before they save.

Deferred annuity is a long term contract whereby you need to put aside a fixed amount of money for “X” amount of time and you cannot touch it before you reach age 55. This will ensure you money will always grow in time because you are not allow to withdraw it. (you still can withdraw it before reach 55 years old but you have to pay the 8% penalty)

6) tax exempt up to RM3,000 per year

this is a good way to reduce your income tax. at least you are eligible to enjoy this tax saving starting form year 2012 to year 2021. you can see how much money can you saved in taxes especially in this section on my previous post “how much can you save on insurance tax relief”.

7) Hassle free estate planning

monies in the PRS account will be subject to the usual estate distribution conditions. upon death, most of your assets including your PRS will be frozen.

Family member are required to apply for a Grant of Probate of Letter of Administration to unlock the deceased’s estate for distribution to the beneficiaries, which will take some time to do so.

For deferred annuity, as this is an insurance product, passing on the benefits of the policy to the next of kin is easily effected through a proper nomination and the proceeds are released with relative ease. This will bring our next point. 

8) This deferred annuity plan come with Death Benefit. 

How important it is for family members to have death benefit payout by insurance company?

Do you know, weather you have proper Will or without Will, you are subject to a minimum charges when you appointed a lawyer to administrate the decease assets. it does not come cheap. the lawyer fee is charged base on the total asset and the difficulty of the case.

The family members can use the death benefits payout by the insurance company to pay off the lawyer fee. The death benefits will usually takes 2 weeks.

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A recent issue posted on freemalaysiatoday.com by someone who is very disappointed with his policy he took from an insurance company. This guy also sent an open letter to the Bank Negara to voice out his disappointment and received numbers of attention from the media as well as insurance company representatives.

i would briefly summarise this case so that we can all learn form it.

 

What happen actually?

a guy own a life insurance policy 12 years ago. He is paying RM1,400 per year for the policy.

recently he was diagnose with prostate cancer.

After consultation, Doctor gave him two options.

Option 1: Undergo radiotherapy and hormone treatment which cost him about RM33,000. (non surgery type of treatment)

Option 2: To remove the prostate glad which cost a lot more then option 1, and comes with higher risk. ( which the insurance will covered full amount )

His doctor told him Option 2 might not be the best option to take.

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The guy would like to choose for Option 1, but to his surprise his insurance only cover up to RM10,000 (lifetime limit) for outpatient treatment, which means he has to fork out RM23,000 from his pocket.

 

My thought on this:

The guy insurance coverage:

a) outpatient treatment: Maximum RM10,000 per lifetime ( apply for option 1)

b) inpatient treatment: up to RM400,000 (apply for option 2)

1) Most medical card offered today don’t segregation between inpatient and outpatient limit. if your medical card have this please  discuss with your insurance agent. we know that there are few company out there that offer this kind of medical card.

2) Please do annual policy review with your agent to get the latest info regarding you life insurance protection because insurance company always come out with new product enhancement from time to time.

3) Get a medical card that has the same limit for inpatient and outpatient.

 

The reason we get insurance coverage is for peace of mind and also to protect out wealth. imagine what would happen if you have accumulated a sum of money for your retirement fund just found out that your need to take out your own retirement fund to pay for medical fee. you can avoid this by choosing a right product.

knowing this simple fact would save you lots of in a long run.