Creating lifelong retirement income with life insurance
If you are retiring soon, now is the time to review your assets and liabilities to have a clear picture of your actual financial well-being. Perhaps you have a paid-up life insurance that you purchased at a young age?
Life insurance offers death benefits that will give financial protection to our family and loved ones. This layer of protection is important to the most of us – unless you are completely debt free (from mortgage or other loans), and your children are old enough to be self-dependant.
Death benefits are a kind of bequest that we may not think of mobilising when we are still alive. The Policy Reverse Mortgage Programme (PRMP), introduced by the Hong Kong Mortgage Corporation Limited (HKMC), offers an option to convert the life insurance policy value into a lifelong retirement income, which provides a long-term and steady monthly annuity income.
The PRMP is a retirement money management instrument for those aged 60 or above to create a lifelong retirement income. It is a loan arrangement using life insurance policy as a collateral. The programme will convert the death benefit of a life insurance policy into monthly payouts over a fixed term or throughout the borrower’s entire life. The programme allows the borrower to withdraw lump-sum payouts for specific purposes when needed.
Generally speaking, the borrower does not need to repay the loan in his/her lifetime. However, the borrower may not be able to leave the death benefits to the beneficiaries as the loan will be repaid by the death benefit amount. Moreover, PRMP, as a type of loan arrangement, will incur certain costs including interests, mortgage insurance premium, legal fees and handling fees.
What a lot of us are most concerned is the amount of the monthly payout. As life insurance is much personalised, each policy is unique and there are no policies that are alike. Moreover, individuals have different circumstances. The HKMC will determine the monthly payout of each applicant on a case-by-case basis, taking into account of various factors.
HKMC will conduct an annual review of the borrower’s insurance policy death benefits. Generally speaking, the monthly payout amount will remain unchanged or increase but not decrease over the payment term.
In terms of eligibility, persons aged 60 or above, who are not an undischarged bankrupt or otherwise subject to bankruptcy petition or individual voluntary arrangement, are eligible for application. There are certain criteria to be met for HKMC to accept an applicant’s policy as collateral. For details, please visit the HKMC website.
12 June 2019