What is IRR? Do you still need to see this when you buy an insurance?
It doesn't have to be this, and a lot of insurance guys don't necessarily count this for customers. However, in the past two years, the term IRR is still relatively hot, many small partners are asking, but also many customers have asked, today I will share with you about this topic.
One
What is IRR?
In fact, before that, I had only heard that Irr, which had only been counted a few times this year, had recently discussed this topic with my teammates in the team, and had also communicated with several more proficient partners for a long time, benefiting a lot.
Simply put, IRR is the internal rate of return. Simply understood as: the average annualized rate of return of investment under compound interest conditions.
Two
What IRR means for us to buy insurance
As we said just now, IRR is for us to simply understand the average annualized rate of return of investment in the case of compound interest!
To better understand IRR, let's first divide list interest and compound interest.
Let's assume the same principal of 10,000, with an annualized return of 4%, and the returns of simple interest and compound interest are as follows:
Through the above picture we can see that the difference in investment returns between simple interest compound interest and long-term is huge, the same principal, according to the annual rate of return of 4%, simple interest takes 25 years to achieve the doubling of the principal, but compound interest only takes 18 years to achieve this goal.
Unified thinking: any investment and financial plan, calculated according to simple interest is a rogue!
So why do we need to use IRR in insurance?
Very simple, the current insurance design is too complicated, such as a large company products, pay 10,000 yuan per year, pay 5 years, return 10,000 yuan per year after five years, return 5 years, and return 3500 yuan at the end of the 10th year... For such an insurance product, the general public can no longer calculate his actual investment income, in order to recognize the true rate of return of insurance products, it is necessary to learn to use the IRR tool to "insight" into the real income of insurance.
So many people say that IRR is the "mirror" of financial insurance, no matter how high the income blown by business personnel, only need an IRR we can distinguish whether a financial insurance is worth our investment!
Three
How is IRR calculated?
To learn the IRR formula, you must first clarify a concept: cash flow.
Cash Flow: The amount of cash and inflows that occur throughout the life of an investment project.
Next, we follow the footsteps of Xiaobian to learn how to calculate IRR, in fact, with the help of the irr formula in EXCEL, we can simply calculate the IRR.
Take a chestnut 1:
Buy an insurance, pay 10,000 yuan in 1 year, and after 5 years, the insurance company pays 13,000 yuan, we can make a cash flow statement as follows:
It is important to note whether the expenditure and inflow of cash flow occur at the beginning of the year or at the end of the year, we must distinguish clearly.
General insurance contributions (cash outflows) generally occur at the beginning of the year; cash inflows from insurance premiums generally occur at the end of the year.
Because the first year of expenditure is 10,000 yuan, and it occurs at the beginning of the first year, it is 0 columns at the end of the year, fill in -10,000;
At the end of the 5th year, 13500 yuan of insurance money was obtained from the insurance company, and the contract was terminated, so at the end of the 5th year, 13500 was filled in;
So the first cash flow "Table 1" is correct.
Next, we can calculate the IRR of this policy through the IRR formula.
By listing the cash flow, and then using the IRR formula, we can easily calculate that the IRR of 10,000 yuan has become 13,500 yuan after 5 years is 6.19%, and the annualized yield of this policy is 5.39% (retaining the two decimal places).
Similarly, we can verify: 10000* (1 + 6.19%) ^ 5 = 13500 yuan
Take a chestnut 2:
The first example is the simplest, followed by the difficulty upgrade
Purchase an insurance policy, pay 10,000 yuan a year, pay for 3 consecutive years, from the 6th policy effective date to the 10th policy effective date, return 20% of the total premium (i.e. 6,000 yuan) per year, and at the end of the 10th policy year, pay 100% of the basic sum insured of 3500 yuan.
Is there something familiar with it? That's right, this is the recent "hot sale" of annuity insurance!
How is this cash flow statement listed?
You read that right, the IRR is only 1.77, which is only 1.77% of the annualized interest rate under the compound interest rate of this insurance's main insurance.
So, how do we judge whether an annuity insurance is good or not through IRR?
How to judge an annuity insurance through IRR?
First of all, the conclusion: At present, the Banking and Insurance Regulatory Commission has stipulated that the predetermined interest rate of annuity insurance shall not exceed 3.5%.
In other words, we look at whether an annuity insurance is good or not, one to see if its IRR is close to 3.5%, and the other to see whether it has other protections.
However, if the IRR of an annuity insurance is low, then its other protections are useless.
In fact, this algorithm is still relatively simple, if there is no calculated partner, you may encounter some small problems, such as what is this formula, the table ranks are confused, it is likely to get the real IRR value, more interpretation, you can private message me Oh.