Hey Anon, yes adding a debt instrument would of course increase the risk vs buying the policy without financing, but that additional risk would directly increase future payouts from the policy.
Whenever we deal with risk we need to see and measure the worst case scenarios.
1) Interest Rates rise
2) Bonus payouts on the policy reduces
3) If interest rate payments are higher than payout rates after the policy starts paying, are you able to continue to finance the policy
4) Any early surrender would leave you with less money than you started and are you ok to take that risk
So what can you do about it?
1) Initially you can borrow less. You don't have to maximise the total loan the bank is willing to finance the policy for. Usually that's 72% of the premiums paid. You can borrow maybe just 60% instead and pay 40% yourself. Yes this reduces the max payout but reduces your risk as well.
2) Find a policy that has a higher base guaranteed payout.
3) Find a policy that pays out quicker. This reduces negative cashflow years
and increases IRR immediately if you wait 1 or 2 years less.
All in all, I would say that no it's not only for high net worth individuals. As financed annuities allow regular folks to build an investment property like instrument at a much lower quantum and participate in rental like payouts at a lower risk.
Since you only pay the interest and never need to pay the principal, the overall price you pay actually decreases which works in favour vs a property investment. Non taxable stream of income without maintenance and hidden costs.
Hey Anon, yes adding a debt instrument would of course increase the risk vs buying the policy without financing, but that additional risk would directly increase future payouts from the policy.
Whenever we deal with risk we need to see and measure the worst case scenarios.
1) Interest Rates rise
2) Bonus payouts on the policy reduces
3) If interest rate payments are higher than payout rates after the policy starts paying, are you able to continue to finance the policy
4) Any early surrender would leave you with less money than you started and are you ok to take that risk
So what can you do about it?
1) Initially you can borrow less. You don't have to maximise the total loan the bank is willing to finance the policy for. Usually that's 72% of the premiums paid. You can borrow maybe just 60% instead and pay 40% yourself. Yes this reduces the max payout but reduces your risk as well.
2) Find a policy that has a higher base guaranteed payout.
3) Find a policy that pays out quicker. This reduces negative cashflow years
and increases IRR immediately if you wait 1 or 2 years less.
All in all, I would say that no it's not only for high net worth individuals. As financed annuities allow regular folks to build an investment property like instrument at a much lower quantum and participate in rental like payouts at a lower risk.
Since you only pay the interest and never need to pay the principal, the overall price you pay actually decreases which works in favour vs a property investment. Non taxable stream of income without maintenance and hidden costs.