IRR (Internal Rate of Return) is an important indicator to measure the actual income level of an annuity insurance product. For a product like Pacific Cornucopia Annuity Insurance, we can also use IRR for a detailed analysis.
IRR, or Internal Rate of Return, refers to the real rate of return on an investment project, taking into account the time value of money. In insurance products, especially long-term investment products such as annuity insurance, IRR can truly reflect the value-added efficiency of funds over a long period of time, and help investors more accurately evaluate the profitability of products.
Calculating IRR requires the help of a professional financial calculator or a financial function from software such as Excel. In Excel, you can use the IRR function to calculate. The basic formula is:
irr = x, where:
0 = c0 + c1/(1+x)^1 + c2/(1+x)^2 + cn/(1+x)^n
Here, c0, c1, c2....CN represents the cash inflow or outflow at different points in time (such as premium payment, survival benefit payment, maturity payment, etc.), and X is the IRR we require.
1.List all cash inflows and outflowsThis includes the premiums paid when the insurance is purchased, the annual survival payment, the maturity payment at maturity, etc.
2.Enter these data into Excel in chronological orderand use the irr function to calculate.
Here are some examples:
Suppose 30-year-old Mr. Wang buys a Pacific cornucopia annuity insurance, pays an annual premium of 100,000 yuan, pays it for 5 years, and receives a survival pension of 20,000 yuan per year from the age of 35 and a one-time maturity payment of 500,000 yuan when he is 60 years old. We can calculate the IRR by following these steps:
1.List the annual cash flow in excel, such as an annual outflow of 100,000 yuan (premium) in the 1st to 5th years, an annual inflow of 20,000 yuan (survival fund) in the 6th to 30th years, and an inflow of 500,000 yuan (maturity payment) in the 31st year.
2.Using Excel's IRR function, you can get the IRR of the insurance product by inputting these cash flow data as parameters.
In order to calculate an accurate result, we need to simulate the cash flow in Excel and do the IRR calculation.
Cash flow:
Age 30 to 34 (5 years): pay a premium of $100,000 per year, a total of $500,000.
35 to 60 years old (26 years): 20,000 yuan per year.
60 years old: receive a maturity payment of 500,000 yuan.
In Excel, we can set it up like this:
Column A: Age (from 30 to 60).
Column B: Cash flow (negative for expenses, positive for income).
Then enter the corresponding cash flow data in column BFor example:
B3: B7 (corresponding to 30-34 years old) = -100,000 (annual premium).
B8: B33 (corresponding to 35-60 years old) = 20,000 (annual survival payment).
B34 (corresponding to 60 years old) = 500,000 (maturity payment).
Next, we use Excel's IRR function to calculate IRR. We want to make sure that the cash flow data is in chronological order, and that the first year's cash flow corresponds to the first non-zero value.
Since the IRR function requires a range of cash flows as parameters, we can use the range of cash flow data in column b as parameters. Assuming the data starts from b3 to ends at b34, we can enter the following formula in any blank cell:
irr(b3:b34)
After pressing the Enter key, Excel will calculate the value of IRR. This value is the internal rate of return of Pacific Cornucopia Annuity Insurance in this particular example.
Since IRR is an annualized compound rate, it represents the average annual return on investment, taking into account the time value of funds; Therefore, the higher the IRR, the stronger the profitability of the annuity insurance product. However, IRR is not the only evaluation indicator, and it needs to be combined with other factors, such as the creditworthiness of the insurance company, contract terms, etc., to conduct a comprehensive evaluation.
Through such calculations, we can derive the actual rate of return of Pacific Cornucopia Annuity Insurance under specific insurance conditions, thereby helping investors to more accurately assess the investment value of the product.
It should be noted that the calculation result of the IRR is affected by a variety of factors, such as the payment method of the premium, the time and amount of the survival payment, and the time and amount of the maturity payment. Therefore, in practice, investors should make adjustments and calculations according to their own specific circumstances.