Unveiling the Truth Behind So-Called "Rental Income Policies": 3 Key Comparison Points to Spot Product Differences

In the market, many insurance advisors claim that certain savings insurance products have a "rent collection" feature, referring to them as "rent collection policies" or "Coupon Plans". What is the essence of this type of insurance, and what are its characteristics? In fact, such policies are a form of lifetime savings insurance, offering both cash flow and the potential for long-term savings. However, different products vary significantly in terms of income frequency, returns, and surrender value. 10Life has conducted a comparison of four similar products with short premium payment terms (2 or 3 years), including AXA Hong Kong and Macau's Wealth Advance Income Plan, Chubb Life's "Star Diamond" Savings Life Plan (Fixed Death Benefit Option), FTLife's "Fortune 100" Prestige Life Plan, and Sun Life's Prime Lunar Savings Plan (2 years).

Comparison of Income Withdrawal Scenarios: Some Products’ Guaranteed Cash Value Decreases with Income Payments

As shown in Table 1, although these plans all offer guaranteed regular income, there are significant differences in income amount, frequency, and surrender value under the income withdrawal scenario. Additionally, both income and cash value can be divided into guaranteed and non-guaranteed components. The guaranteed portion is bound by the policy contract, while the non-guaranteed portion is influenced by factors such as the insurer’s investment performance, dividend policy, and economic conditions.

Regarding the guaranteed income period for guaranteed amounts, both AXA Hong Kong and Macau and Sun Life products offer a guaranteed income period exceeding 100 years. However, the annual guaranteed income for AXA Hong Kong and Macau’s product decreases starting from the 41st year (Note 1).

Policyholders should also pay attention to differences in income frequency to align with their financial planning and savings goals. Among the four products, Sun Life’s product offers guaranteed monthly payouts, making it the most frequent guaranteed payout among the four, while FTLife’s product guarantees payouts only once every three years.

Concerning guaranteed surrender value, the guaranteed cash value of AXA Hong Kong and Macau’s product decreases with income payments, resulting in a lower guaranteed surrender value at the 30th year compared to the 20th year.

 

Table 1: Comparison of Product Income Amounts, Income Payout Frequency, and Cash Value at Surrender in Year 30 (Income Withdrawal Scenario)

Comparison of Accumulation Scenarios: Projected Cash Value at Surrender in Year 30 Differs by 24.6%, Guaranteed Break-Even Year Differs by 20 Years

Another selling point of these plans is the flexibility to choose not to withdraw income, allowing funds to accumulate and generate interest for further asset growth.

10Life researched the performance of each product under the accumulation scenario, i.e., the cash value at surrender in year 30 without withdrawing income. We found significant differences in cash value at surrender in year 30, especially in guaranteed cash value. Among the four products:

• Guaranteed Cash Value: The highest is Sun Life’s product (approximately $150,000 USD), while the lowest is FTLife’s product (approximately $96,000 USD), a difference of 35.7%.
• Projected Cash Value: Sun Life’s product is the highest (approximately $326,000 USD), while FTLife’s product is the lowest (approximately $261,000 USD), a difference of 24.6%.

As for the guaranteed break-even year, FTLife’s product takes the longest at 32 years. In contrast, Sun Life’s product takes only 12 years, making it the fastest among the four products to guarantee break-even. 

 

Table 2: Comparison of Guaranteed Break-Even Year and Cash Value at Surrender in Year 30 (Accumulation Scenario)

Time is Money: Internal Rate of Return Reveals the Truth

Since the cash flow of these products varies in terms of income amount and frequency, comparing them solely based on amounts does not account for the time value of money. Therefore, we further compare the four products using the Internal Rate of Return (IRR). IRR can be understood as the annualised rate of return, used to measure the product’s performance.

With the same premium amount and similar annual guaranteed withdrawable cash, at the 30th policy anniversary:

• Guaranteed IRR: For the two products where guaranteed cash value does not decrease with income payments, namely Chubb Life and Sun Life products, the guaranteed IRR under the income withdrawal scenario is higher than under the accumulation scenario. This is because IRR considers the time value of money, and withdrawing income allows policyholders to enjoy the benefits of income earlier. Among the four products, Sun Life’s product has the highest guaranteed IRR, reaching 1.75% under the income withdrawal scenario and 1.37% under the accumulation scenario.
• Projected IRR: Among the four products, Sun Life’s product has the highest projected IRR, reaching 4.20% under the income withdrawal scenario and 4.08% under the accumulation scenario.
  
   

As seen above, even though these are all Coupon Plans, there are many differences, including guaranteed income frequency, whether guaranteed cash value decreases with income payments, and internal rates of return under different scenarios. Consumers should carefully research and compare these products to understand the differences and choose a plan based on their personal needs.

Notes:

1. For AXA Hong Kong and Macau Wealth Advance Income Plan, guaranteed cash from years 4 to 40 is $2,063 USD, in year 41 it is $1,919 USD, and from years 42 to 138 it is $975 USD.
2. This article uses four products as examples to illustrate their differences, but the content is not exhaustive. You should consult a licensed advisor before purchasing to ensure the product meets your personal needs.
3. The above information is provided by 10Life, updated as of 11 October 2021, for reference only and does not constitute sales advice. 
   
    

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.