Qualifying Deferred Annuity Policy (QDAP) satisfies the Insurance Authority (IA)’s criteria on deferred annuity products in premium size, premium payment term, annuity income term and product disclosures. The premium paid is tax deductible under salaries tax or personal assessment, subject to a cap of $60,000 per year. Based on the highest marginal tax rate (17%), the maximum tax savings is $10,200. The rate of return is an important factor of deferred annuity products, where the value can be enhanced by higher guaranteed and projected returns. The rate of return can be enhanced if the tax savings element is considered, particularly for policyholders on high marginal tax rates.
As the taxation and savings needs vary by individuals, 10Life rates the QDAP (Savings) products based on three factors - guaranteed return, projected return and early surrender coverage.
There is a large variety of Qualifying Deferred Annuity Policy (QDAP), with different premium term, annuity income start age and annuity income term. 10Life separates available products into three main categories based on target customer segment.
- QDAP (Savings), focusing on the return of savings in the medium term (annuity income starts far earlier than the general retirement age)
- QDAP (Retirement), focusing on mid- to long-term retirement planning (annuity income starts at retirement age; annuity income term of 10 years or 20 years can be selected)
- QDAP (Longevity), focusing on hedging longevity risk (annuity income starts at retirement age; annuity income term as long as possible)
Assumptions (QDAP Savings)
- Issue age 35 or age 45, Male
- Premium payment term: 5 years (or nearest)
- Annual premium amount: US$7,800 (equivalent to HK$60,000)
- Annuity income start: age 50 (or nearest)
- Annuity income term: 10 years (or nearest)
Guaranteed Return Score
Insurers are obligated to pay the guaranteed income as a living benefit to the policyholder. 10Life calculates the guaranteed cash flow by considering the premium paid and guaranteed income in the scenarios that the policy is terminated or surrendered at age 60.
10Life calculates the present value (PV) of income received versus premium paid discounted by the risk-free rates assuming the policy commences today. Risk-free rates of different currencies are determined by the long-term yields of the respective government bonds.
- USD: United States Treasury Bonds
- HKD: Hong Kong Exchange Fund Notes
The risk-free rates may be updated from time to time to reflect changes in the market.
The Guaranteed Return Score is calculated by the ratio of PV of income received and PV of premium paid at age 60, compared against the benchmark.