Qualifying Deferred Annuity vs Short-term Savings Insurance: Which is More Worthwhile?

false

Category

Author

Search for Articles

Trending Keywords

Recently, a Qualifying Deferred Annuity Policy (QDAP) product has emerged in the market - BOC Life Deferred Annuity Plan (Fixed Term).

Upon surrendering the policy after completing payments for 5 years, policyholders can break even, allowing high-income individuals to maximise tax deductions during the contribution period and achieve decent returns. This "variant deferred annuity" effectively offers benefits similar to short-term savings insurance, attracting significant interest from readers. If the goal is to break even quickly and earn interest with short-term contributions, which is more advantageous: a "variant deferred annuity" or short-term savings insurance? What should everyone take note of? Insurance comparison platform 10Life breaks it down for you step by step.

Comparing Internal Rate of Return

When comparing a "variant deferred annuity" and short-term savings insurance, we calculate the guaranteed Internal Rate of Return (IRR) of the products.

The "variant deferred annuity" relies on tax deductions as the return upon surrendering the policy at the end of the contribution period. The return depends on the marginal tax rate. For instance, at the highest marginal tax rate of 17%, the IRR is 5.9%. However, if the policyholder’s income is lower and the marginal tax rate is below 17%, the tax savings decrease, resulting in a lower IRR. Below is the "Internal Rate of Return" calculated for the BOC Life Deferred Annuity Plan (Fixed Term) with an annual premium of HKD 60,000 under different tax rates:

Taxable Income After All Exemptions	Marginal Tax Rate	Annual Tax Savings	"Variant Deferred Annuity" "Internal Rate of Return"^
$120,000	6%, 10%	$4,400	2.5%
$180,000	10%, 14%	$7,200	4.1%
$240,000	14%, 17%	$9,600	5.5%
$300,000	17%	$10,200	5.9%

^Calculation of Internal Rate of Return: Assumes a 45-year-old male policyholder enrolling in the BOC Life Deferred Annuity Plan (Fixed Term), surrendering the policy after the 5-year contribution period, and using the tax deduction from the "Qualifying Deferred Annuity" as the policy’s return.

As for short-term savings insurance products currently available in the market, the maturity period typically ranges from 3 to 6 years, with varying guaranteed IRR across different products. Details are as follows:

Deferred Annuity is for Retirement, Not Tax Evasion

Currently, the typical IRR for short-term savings insurance in the market ranges from approximately 2.7% to 3.8%, which is lower than the tax deduction returns of a "variant deferred annuity". Does this mean the "variant deferred annuity" is more attractive? There are several points to consider:

The tax deduction limit for a "Qualifying Deferred Annuity" is HKD 60,000 per year. To achieve the maximum "Internal Rate of Return", the annual contribution for a "variant deferred annuity" should not exceed HKD 60,000. Otherwise, the excess contribution will not qualify for tax deductions, dragging down the overall IRR;
Both short-term savings insurance and "variant deferred annuity" products have "entry thresholds". The minimum annual premium for short-term savings insurance products ranges from a few thousand to over a hundred thousand HKD, while the entry threshold for BOC Life’s "variant annuity" is HKD 36,000 per year;
Using a "variant deferred annuity" as short-term savings to earn tax deductions relies entirely on the tax savings. However, the purpose of the government’s tax incentives is to encourage citizens to prepare for retirement early, not to exploit tax loopholes for profit. Therefore, if the government amends the tax incentives, policyholders may face unexpected losses. Hence, individuals should understand the long-term returns of deferred annuity products and their retirement protection benefits. If a policyholder chooses to hold the policy for 15 years until maturity and receive regular annuity income, the guaranteed IRR would be 5.1% (based on a 17% marginal tax rate).

10Life has also compared various deferred annuity products in the market. For more details, you can visit our Annuity 《Insurance Decoder》.

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.

Last updated: 9 Apr 2026

10Life Editorial Team

Our team of professional content researchers focussing on insurance

About Author

10Life Editorial Team

Our team of professional content researchers focussing on insurance

About Author

Disclaimer

10Life Product Comparison and 10Life Insurance Ratings are developed by 10Life Financial Limited, an authorised insurance broker company licensed with the Insurance Authority under License Number FB1526. 10Life Product Comparison and 10Life Insurance Ratings are developed for generic customer segments using mathematical calculations based on product information, facts and data, and are not influenced by any partnerships with or fees received from insurance companies. Any information on 10Life Platform ("10Life Information"), including but not limited to Product Comparison, Product Ratings, Blog Articles are intended for general education purpose and reference only. None of the 10Life Information is intended, nor should they be considered or relied upon, as regulated advice, insurance, financial, investment or professional advice, recommendation, approval, endorsement, invitation or solicitation in respect of any insurance, financial or investment products. 10Life Information does not take into account your individual needs. Reading 10Life Information should not be considered as conducting a suitability assessment, and is not sufficient to form the basis of any decisions to purchase any insurance products. You should rely on information authorised by insurance companies, carry out your own research and/or seek independent advice from licensed intermediaries before purchasing any insurance products or making any insurance decisions. While reasonable effort is used when collecting, validating and updating 10Life Information from various channels, none of 10Life Group and its subsidiaries, affiliates, agents, directors, officers and employees will be responsible for any liability, claim or loss arising from or associated with you using 10Life Information. No warranty, representation or guarantee is given by 10Life Group and its subsidiaries on the accuracy, completeness and timeliness of the information. If you have any questions on 10Life Product Comparison and 10Life Insurance Ratings, please email us at enquiries@10life.com

Trending

Short-term Savings Insurance VS "Modified Deferred Annuity" Returns Comparison

Trending