Monday 9 December 2013

HLA Cash Promise, What's All The Fuss About?

Most recently, a blog reader of mine highlighted this product by the name of Hong Leong Assurance (HLA) Cash Promise. This product has generated quite a buzz over the past 1-2 years due to its annual guaranteed cash benefits, paid on the first year of subscription. In addition the policy subscriber is only required to deposit a fix amount over a period of 6 years to enjoy the annual guaranteed cash benefit  payout (approximately 20% of the annual fix amount deposited) for 25 years. 

In fact the HLA Cash Promise is intensely debated in a thread at LowYet.net as shared below:


Despite the heated discussion of the product as well as the occasional sharing of experience related to unscrupulous agent trying promoting the product blindly, there's still not much that can be concluded from the product.

I tried searching Hong Leong Assurance website only to find the product disclosure sheet which still lack certain information such as the how the annual guaranteed cash benefit is calculated or how the dividend is calculated.

Google searched the product only to discover a few blogs created by representative/agents of this product. Luckily I manage to locate the brochure for the product from one of the blog. Despite the limited information, I'll try my best to review this product to the best of my understanding. 

Now let us take a look at what are the key points of HLA Cash Promise:

Key Points of HLA Cash Promise
  • This is an Insurance Saving Plan (another common name is Insurance Endowment Plan)
  • This is a 25-year participating endowment plan with Guaranteed Yearly Income. 
  • The Guaranteed Yearly Income is payable from end of 1st policy year up to maturity. 
  • The premium payment term of this plan is limited to 6 years only. 
  • The plan provides coverage for Death and Total Permanent Disability*
  • Upon maturity you will enjoy the following:
    • Guaranteed Maturity Benefit
    • Accumulated Guaranteed Yearly Income (if any)
    • Accumulated Non-Guaranteed Annual Cash Dividend (if any)
    • Terminal Dividend (if any)
*I will not elaborate much on the insurance coverage of this product as I believe many are into this plan due to the attractiveness of the annual guaranteed cash benefit and maturity amount. 

What will you get on a yearly basis?
  • Guaranteed Yearly Income
  • Non-Guaranteed Annual Cash Dividend

Descriptions of the above is shown in the product brochure below:


About Guaranteed Yearly Income
A guaranteed amount paid yearly for 25 years.

Both the brochure and the product disclosure sheet does not indicate how the guaranteed amount paid is calculated. However from blogs providing calculation samples, I believe the rate used to calculated Guaranteed Yearly Income is 20% of the annual amount deposited.

For example;
If you subscribe to this plan and you're depositing RM50,000 per year over 6 years, the Guaranteed Yearly Income is
= 20% of RM50,000
= RM10,000 (paid out yearly to you over a period of 25 years)

You are also given flexibility to do the following with your Guaranteed Yearly Income:

  1. Cash out the yearly cash for immediate usage
  2. Save the cash by depositing with Hong Leong Assurance and let your cash grow with interest over 25 years. (The interest offered by HLA for saving your Guaranteed Yearly Income according to one of blog is 5.25%)

About Non-Guaranteed Annual Cash Dividend
A non guaranteed amount that is declarable annually on survival of the life assured at the end of each policy year beginning from year 1 until maturity.

Once again, both brochure and the product disclosure sheet does not indicate the (%) of the cash dividend as well as based on what principal amount will the cash dividend be calculated.

Referring to blogs providing calculation samples, I conclude that the Non-Guaranteed Annual Cash Dividend is 2% of the annual amount deposited.

For example;
If you subscribe to this plan and you're depositing RM50,000 per year over 6 years, the Non-Guaranteed Annual Cash Dividend is
= 2% of RM50,000
= RM1,000

The same flexibility is given for Non-Guaranteed Annual Cash Dividend, allowing the policy holder to cash out or save the cash.

Total Amount Approximately Obtained from Yearly Income
This is a sample approximate based on the following scenario:

  • RM50,000 per year deposit over 6 years
  • 20% on Guaranteed Yearly Income
  • 2% on Non-Guaranteed Annual Cash Dividend
  • No withdrawal of cash over 25 years, saving it with HLA at 5.25% per annum interest

Calculation of the Sum of Yearly Income over 25 years as shown in the table below:


What will you get when policy matures?
Upon maturity you will enjoy the following:
    • Guaranteed Maturity Benefit
    • Accumulated Guaranteed Yearly Income (if any)
    • Accumulated Non-Guaranteed Annual Cash Dividend (if any)
    • Non-Guaranteed Terminal Dividend (if any)

About Guaranteed Maturity Benefit
One of the blog promoting this product wrongly misinterpret the Guaranteed Maturity Benefit to be the return of the total cash deposited over 6 years. In truth, the Guaranteed Maturity Benefit is paid according to the Entry Age of the policy holder whereby the amount is calculated using a multiplier value of the Guaranteed Yearly Income.

See table below for details of Guaranteed Maturity Benefit calculation


For example;
If you subscribe to this plan at the age of 30, depositing RM50,000 per year over 6 years and the Guaranteed Yearly Income is RM10,000, 
The Guaranteed Maturity Benefit upon Maturity is 
= 12.5 x Guaranteed Yearly Income
= 12.5 x RM10,000
= RM125,000

About Non Guaranteed Terminal Dividend
The value of this dividend is unknown to anyone except HLA. Therefore this dividend will be omitted from any calculation.

What is the IRR of HLA Cash Promise?
In order to calculate the Internal Rate of Return (IRR), the total payout upon maturity of the policy need to be determined.

The table below summarizes the total payout*:


With this, we can now determine the IRR for HLA Cash Promise as shown below:

IRR = 3.62%
Summary
Based on the calculated of IRR for HLA Cash Promise of 3.62% (disputable if you do not agree), we see that the rate is almost similar to you keeping your money in a fixed deposit account. This is a huge contrast to the exaggeration written by certain blogs promoting this product.

Do take note that I have excluded the Non-Guaranteed Terminal Dividend which could make a significant difference to the IRR calculation if the value given is big.

In all honesty, the product is considered a great instrument for saving up your money (not investing) and at the same time enjoy the insurance protection. Never the less, if you intend to sign up for this plan, do remember to verify and check on the charges incurred.

Cheers and Happy Investing!

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You can also contact me at shanesee03@gmail.com for further questions/inquiries about investing and how to start one yourself.

2 comments:

  1. I always believe in insure and invest the difference on your own because the return is higher and insurance companies are not expert in investing.

    ReplyDelete
  2. hi, that's an interesting job done over there. however i need to clarify on the Guarantee Yearly Income(GYI) , the 20% is only for the 1st year and subsequent year is 12.5% . Besides that the (GYI) is paid only the capital of 6,000 and not the rest of the amount. (TAKE NOTE). The minimum amount to deposit is
    6k.

    Need to revise you example for the below...

    For example;
    If you subscribe to this plan and you're depositing RM50,000 per year over 6 years, the Guaranteed Yearly Income is
    = 20% of RM50,000
    = RM10,000 (paid out yearly to you over a period of 25 years)

    ReplyDelete