Future Insurance Policy Illustrated Investment Rate Reduced(guestpost)
Future Insurance Policy Illustrated Investment Rate to be reduced to 4.25% and 3.00% from 4.75% and 3.25%.
This post was originally posted here. The writer, Kyith Ng is a veteran community member and blogger on InvestingNote, with a username known as @kyith and has 1,000+ followers.
Last week, we received an announcement that with effect from 1st July 2021, the policy illustrated investment rate (PIRR) will be lowered from 4.7% to 4.25% and 3.25% to 3.00% respectively.
What is Your Policy’s Illustrated Investment Rate (PIRR)?
Some of your insurance policies accumulate cash values. You contribute additional capital, on top of insurance charges to it.
The insurance companies will take your capital and invest in a participating fund. You can see this partipating fund as a pool of stocks, bonds, cash, property investments managed by a group of managers, much like your unit trust, hedge fund with a certain mandate.
Typically, endowment plans, limited whole life plans are the kind of policies whose cash value is tied to the performance of the participating fund.
Term plans do not accumulate values so they are not impacted by this illustrated investment rate in any way. Investment-linked policies (ILP) performance is tied to the underlying unitt trust chosen and therefore are not affected by this. Universal life policy returns are typically determined by crediting rate or a hybrid benchmark for those indexed link, so they are less affected by this as well.
The following extracts are taken from a policy’s benefits illustration:
You can see that there are two investment rate of return provided to illustrate to you how much value your policy will accumulate in due time.
One is a optimistic rate (4.75% a year) the other is conservative (3.25% a year)
This is for illustrative purpose. It does not mean that the eventual investment return will fall between 3.25% and 4.75%.
You will notice that year to year, the investment return varies.