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Sunday, September 23, 2007

Premium for Life Annuity at 65

Dear Mr Tan

Will the insurance premium for life annuity at 65 be very high and most old folks will not find it attractive?

MY REPLY

The correct way is to look at the yield under a life annuity for a given amount of investment. Here is the yield for a male at age 65 investing $100,000:

Monthly Yield *
Payable for 20 years $601 7.2%
Payable for 30 years $473 5.7%
Payable for life - no refund $619 7.4%
Payable for life - with refund $498 6.0%

* The yield includes a consumption of the initial capital.

The above figures assume a yield of 4% and does not impose any loading for expenses or profit. They are provided for educcational puropse and do not reflect the commercial terms available in the market.

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