Scoring Methodology of QDAP (Savings)

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.

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.

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. 

Some products offer a non-guaranteed income for the policyholder in the policy projection, which is subject to change by the insurer. 10Life calculates the projected cash flow by considering the premium paid and projected income in the scenario 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 market rates assuming the policy commences today. Risk-free rates of different currencies are determined by the long-term yields of the respective government bonds.

We then use the Capital Asset Pricing Model (CAPM) to derive market rates of the respective currency. The risk-free rates and market risk assumptions may be updated from time to time to reflect changes in the market.

The Projected Return Score is calculated by the ratio of PV of income received and PV of premium paid at age 60, compared against the benchmark. 

Since the implementation of GL16 in early 2017, insurers are required to disclose fulfillment ratios of non-guaranteed dividends or bonuses. However, current published data available in the market mainly cover the fulfillment ratios of the first few policy years, making it insufficient to determine the ability of insurers fulfilling these long-term non-guaranteed returns. Moreover, products and market assumptions are constantly changing, making it difficult to predict future returns based on past returns. Therefore, 10Life does not take published fulfillment ratios into the calculations of the Projected Return Score.

While the intended use of QDAP (Savings) is not for early cash-out, there may be cases where an urgent unexpected use of cash is required after purchasing the product or tax reduction is not suitable anymore. 10Life calculates the Early Surrender Coverage Score based on the guaranteed benefit per premium paid in the following scenarios:

* The Early Surrender Coverage Score is based on the average of these 4 scenarios.

* The Early Surrender Coverage Score is based on the average of these 2 scenarios.

Guaranteed benefit per premium paid is calculated by the following formula. 

10Life Product Ratings and Scores are mathematical calculations based on public product information and assumptions for generic customer segments. The Product Ratings and Scores do not reflect your personal needs. 10Life hereby excludes any liability arising from using the information and will not make warranty or guarantee on the accuracy, completeness and timeliness of the information or for any claims and / or losses caused thereby. You should seek independent professional advice and review the insurance product information carefully before purchasing any insurance products. The information shown in the communications placed on 10Life does not constitute an offer or solicitation for the purchase or sale of any banking or insurance products or services. If you have any questions or suggestions on the methodology, please email us at enquiries@10Life.com.

Updated on 29 July 2021.