Insurance – Annuity
Annuity is a long-term life insurance policy which converts accumulated premiums into a steady income source over an extended period of time. It can be utilized as a tool for retirement savings which allows policy holder to enjoy a steady cash flow during retirement.
There are two types of annuity products – Immediate Annuity and Deferred Annuity which consists of different premium payment phase, accumulation phase and annualization phase:
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- Premium Payment Term – Fixed payment Fixed term/Lump Sum
- Accumulation Period – Pays premiums regularly over a period of time followed by a deferral period
- Annuity Period – Receive regular payments
- Permanent Annuity – Till 100 years old or whole life
- Fixed Annuity – Over a fixed period of time
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Qualified Deferred Annuity Policy is a deferred annuity policy which enjoys tax benefits provided by the Hong Kong Government. The aggregate annual tax deductible limit is $60,000 for the qualifying deferred annuity premium and MPF Tax-deductible Voluntary Contribution, and the policy owner may claim deductions under salaries tax or personal assessment. Based on the prevailing highest tax rate (i.e. 17%), the maximum tax savings can reach $10,200.
For relevant premiums to qualify for tax deductions, a deferred annuity product must comply with the guideline issued by the Insurance Authority, including:
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- Minimum total premiums of $180,000 and minimum payment period of 5 years
- Minimum annuity period of 10 years
- Annuitization at the age of 50 or beyond
- Disclosure of the internal rate of return of the product to facilitate evaluation and comparison
- Clear presentation of the guaranteed and non-guaranteed annuity payouts
- Clear separation of premiums of all riders (e.g. critical illness, hospitalisation cash, etc.) from the qualifying deferred annuity premiums
Please refer to our blog article for a comparison between QDAP and MPF Tax Deductible Contribution and contact us if you have any questions.