【Tax Deduction Duo】Eligible Deferred Annuity Policy (QDAP) and Voluntary Health Insurance Scheme (VHIS) help save on taxes and secure protection.

 “Qualifying Deferred Annuity Policy” (QDAP, commonly known as “Tax-Deductible Annuity”) and the Voluntary Health Insurance Scheme (VHIS) are often referred to as the “Tax Deduction Duo”, offering policyholders a combined tax deduction of up to HKD 68,000 (Note 1). These schemes are highly popular among taxpayers. Beyond tax benefits, consumers should also understand the features of these products and align them with their life planning and personal needs to maximise both tax savings and protection. In this article, FWD introduces the key features of tax-deductible annuities and voluntary health insurance, with a diverse range of options tailored to meet different customer needs. 

FWD Triumph‧Age Offers Flexibility for Early Retirement Planning

The FWD Triumph‧Age Deferred Annuity Plan (hereinafter referred to as FWD Triumph‧Age) offers flexibility, allowing policyholders to select a combination of premium payment and annuity periods based on their personal needs. The product provides premium payment periods of 5 or 10 years, and annuity periods of 10 or 20 years, enabling customers to plan their future finances. Policyholders can start receiving monthly annuity income as early as age 51 (Note 2) or after the premium payment period ends, helping them achieve their dream of early retirement.

Depending on the premium payment and annuity period options chosen by the customer, the accumulation period varies, resulting in differences in the corresponding guaranteed and expected Internal Rate of Return (IRR). The chart below illustrates the IRR for a 46-year-old policyholder under different combinations of premium payment and annuity periods. For example, with a 10-year premium payment period and a 20-year annuity period starting at age 66, the guaranteed and expected IRR at maturity range from 1.63%-1.66% and 3.56%-3.63%, respectively.

Chart 1: Internal Rate of Return for FWD Triumph‧Age Deferred Annuity Plan 

Notes:

1. The “age” or “years old” mentioned in the chart refers to the insured’s age at their next birthday.

2. Assumes the policyholder is a 46-year-old non-smoking male.

3. Data is sourced from the FWD Triumph‧Age Deferred Annuity Plan product brochure, updated as of 22 February 2021.

FWD Triumph‧Age Guarantees Break-Even in 9 Years with Life Protection
 

A deferred annuity is a medium to long-term insurance plan, and its maximum benefits are realised when held for an extended period. However, unforeseen circumstances may arise, such as an urgent need for funds to address sudden expenses or the necessity to surrender the policy early. From a break-even perspective, if a 46-year-old policyholder enrolls in FWD Triumph‧Age with a 5-year premium payment period, the guaranteed break-even period is 9 years. If the policy is surrendered at or after the guaranteed break-even period, the policyholder is assured to receive an amount no less than the total premiums paid.

In addition to providing a steady income stream for policyholders, FWD Triumph‧Age also offers life protection (Note 3). Policyholders can flexibly choose the death benefit payout arrangement, opting for a lump sum or instalment payments to beneficiaries, allowing for greater flexibility in asset distribution. If the policyholder chooses instalment payments for the death benefit, the unpaid balance can also accumulate interest (Note 4) until fully paid out.

Moreover, FWD Triumph‧Age allows policyholders to apply for a deferment of premium payments due to changes in employment circumstances, with an extended grace period of up to 365 days (including the original 30-day premium grace period) (Note 5). This provides policyholders with additional cash flow to address future uncertainties.

FWD Offers a Variety of VHIS Plans with Distinct Features

The other member of the “Tax Deduction Duo” is the Voluntary Health Insurance Scheme. FWD has launched several VHIS plans (Note 6) targeting different consumer segments. Among them, the FWD vPrime Medical Plan (hereinafter referred to as “FWD vPrime”) and the FWD vEasy Medical Plan (hereinafter referred to as “FWD vEasy”) are considered flagship medical insurance products of FWD.

FWD vPrime is a semi-private room plan ideal for the middle class, offering “full cover” (Note 7) for hospitalisation, surgical procedures, and specified non-surgical cancer treatments. The product also includes a deductible option, allowing policyholders with existing corporate group medical insurance to enjoy lower premiums while enhancing their medical coverage through FWD vPrime’s deductible feature. If the insured is unfortunately diagnosed with specified critical illnesses such as cancer, cardiomyopathy, or stroke, FWD vPrime will waive the deductible (if any) (Note 8), providing full reimbursement for related medical expenses.

FWD vEasy is positioned as a more accessible and affordable option, offering both standard ward and semi-private room plans. The product adopts an innovative “per policy year per illness/injury” (Note 9) reimbursement mechanism, providing “full cover” for hospitalisation and surgical expenses within the “per policy year per illness/injury” limit, with no annual or lifetime benefit limits. The advantage of this reimbursement mechanism becomes evident when the insured requires cross-year treatment for the same illness/injury or is hospitalised for different illnesses/injuries within the same policy year.

Enrolling in Both QDAP and VHIS to Maximise Tax Deduction Benefits

If a policyholder simultaneously enrolls in FWD Triumph‧Age (with an annual premium of HKD 60,000) and FWD vCare (Supreme) Medical Plan (with a first-year premium of HKD 7,220), based on the highest tax bracket of 17%, they can save HKD 11,428 in annual tax for the first year (see chart below). Furthermore, premiums paid each year are eligible for tax deductions (Note 1). In a way, it is as if the government encourages taxpayers to plan early for retirement and medical protection through tax relief.

Chart 2

 
If you are interested in the FWD Triumph‧Age Deferred Annuity Plan or Voluntary Health Insurance, you may inquire with licensed advisors at 10Life.

Notes﹕

1. Each taxpayer can claim a tax deduction for premiums paid for certified products under the Voluntary Health Insurance Scheme for themselves or specified relatives, with a cap of HKD 8,000 per insured person per assessment year. Each taxpayer can also claim a tax deduction for Qualifying Deferred Annuity premiums and Mandatory Provident Fund Tax-Deductible Voluntary Contributions, with a combined cap of HKD 60,000 per assessment year. The actual tax refund depends on the taxpayer’s assessable income and tax rate. Tax deductions are subject to the latest regulations of the Hong Kong Inland Revenue Department. Applicants can only claim tax deductions for actual premiums paid, subject to assessment by the Inland Revenue Department. Any premium refunds or discounts are not eligible for tax deductions. For more information on tax relief measures for eligible VHIS plans and/or Qualifying Deferred Annuity Policies, please refer to the Inland Revenue Department’s website. If in doubt, seek independent tax advice from a professional.
2. The “age” or “years old” mentioned in this article refers to the insured’s age at their next birthday.
3. The death benefit is the higher of: (i) 105% of the total premiums paid, less any monthly guaranteed annuity payments made (if any); or (ii) the guaranteed cash value and special bonus (if any), plus accumulated monthly annuity payments and interest (if any), less any outstanding amounts owed to FWD and any unpaid premium levies.
4. The interest rate is not guaranteed and may change from time to time. The interest rate is subject to FWD’s latest dividend distribution philosophy and investment strategy. For details, please refer to the dividend information and investment strategy section in the product brochure.
5. Applications for an extended grace period are subject to relevant policies and procedures determined at FWD’s sole discretion from time to time. Only paid Qualifying Deferred Annuity premiums are eligible for tax deductions. Any premiums unpaid during the extended grace period or the 30-day grace period are not eligible for tax deductions. Please note that any overdue premiums paid within the grace period or premiums paid after policy reinstatement following the grace period may not be tax-deductible. For any tax-related inquiries, please visit the Inland Revenue Department’s website or contact them directly. If you have any questions, be sure to consult a professional tax advisor.
6. FWD’s Voluntary Health Insurance Schemes include: vPrime Medical Plan, vEasy Medical Plan, vCare (Supreme) Medical Plan, vCare Medical Plan, vSure Medical Plan, and “SmartSimple” Medical Insurance Plan.
7. “Full cover” means no sub-limit on reimbursement, covering the actual amount of eligible expenses and other expenses after deducting the remaining deductible (if any), subject to annual and lifetime benefit limits. Full cover applies only to specified benefit items, while other benefit items are not fully covered and are subject to the reimbursement limits of the relevant items. For details, please refer to the product brochure and policy terms.
8. This benefit applies only to policies with a deductible and is subject to annual and lifetime benefit limits. Specified critical illnesses include cancer, cardiomyopathy, chronic liver disease, coronary artery surgery, end-stage lung disease, fulminant hepatitis, acute myocardial infarction, heart valve surgery, kidney failure, major organ transplant, Parkinson’s disease, primary pulmonary hypertension, severe rheumatoid arthritis, stroke, aortic surgery, and terminal illness. If the insured’s medical services are related to a specified critical illness but the symptoms, diagnosis, or surgery occur within 90 days from the policy effective date, FWD will not waive any remaining deductible. This benefit/service is optional and not part of the terms and benefits of the certified VHIS product - vPrime Medical Plan. You have the right to opt out of this benefit/service. If you do not wish to receive this free additional benefit/service, please notify FWD in writing. For details and definitions of specified critical illnesses, please refer to the policy terms of FWD vPrime.
9. (a) For each hospitalisation or day-case surgery related to the same illness/injury, the applicable benefit limit and/or per illness/injury per policy year benefit total will be recalculated, provided that the hospitalisation or day-case surgery does not occur within a continuous 90-day period from the last date of a previous hospitalisation or day-case surgery for the same illness/injury (as defined in the supplementary document - Benefit Limits and Calculation of the policy terms). (b) When the insured is hospitalised or undergoes any day-case surgery for more than one illness/injury, all different illnesses/injuries involved in the same hospitalisation or day-case surgery will be subject to a single applicable benefit limit and/or per illness/injury per policy year benefit total. For details, please refer to Part 1, Section 1 of the supplementary document - Benefit Limits and Calculation of the policy terms.
10. The Triumph‧Age Deferred Annuity Plan and the aforementioned VHIS products are underwritten by FWD Life Insurance Company (Bermuda) Limited (a limited liability company incorporated in Bermuda) (“FWD”). The above information outlines the key features of the relevant products. For detailed terms and conditions and all exclusions, please refer to the relevant policy terms.
11. The above information is provided by FWD, updated as of 23 February 2021, and is for reference only. It is intended for distribution in Hong Kong and does not constitute sales advice, solicitation to purchase, or an offer of FWD’s insurance products.

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