How can insurance be used for savings? Compare savings insurance, tax-deductible annuities, investment-linked insurance, and universal life insurance. Analyse returns and risks.

Insurance products designed for saving purposes come in a wide variety, with common types including savings insurance (which can be further subdivided into short-term and lifelong plans), tax-deductible annuities (officially termed "Qualifying Deferred Annuity Policy", QDAP), investment-linked assurance schemes (commonly referred to as "ILAS"), and universal life insurance. However, many consumers find these insurance products confusing, or they may purchase them lured by high returns, only to incur losses due to early surrender. What are the differences between these products? What are the key considerations before purchasing? In the following article, 10Life will explore the characteristics of these products in detail, including their returns, purposes, and potential risks.

Whole life savings insurance can be used for long-term savings, preparing for future retirement, children’s education, or achieving dreams (such as starting a business or travelling the world). The product offers guaranteed and expected returns, and the policy term can extend for a lifetime. Policyholders need to select a contribution period (ranging from 1 to 25 years) during which fixed premiums are paid. It is important to understand the target term and the IRR (Internal Rate of Return) of the policy at that target term. For example, Mr. Chan plans to support his child’s overseas education in 20 years and can compare the 20-year IRR of different whole life savings insurance plans. Given that whole life savings insurance takes time to accumulate value, early surrender of the policy may result in losses for the policyholder.

It is worth noting that the positioning of savings insurance products in the market varies, with different returns and risks:

• Conservative: Focuses on guaranteed returns
• Growth: Balances guaranteed and expected returns
• Aggressive: Emphasises expected returns

If you wish to compare whole life savings insurance products, you can visit the ‘Product Decoder’ on the 10Life website:

Compare Savings Insurance

Universal life insurance has a higher entry threshold, and policyholders typically need to pay a substantial lump-sum premium, making it more suitable for wealthier individuals. Some products offer a minimum guaranteed dividend rate for a specified period, allowing policyholders to use premium financing to borrow at a low interest rate (lower than the guaranteed dividend rate of the universal life insurance) to cover the large premium. In a sustained low borrowing cost environment, policyholders can profit from the interest rate difference. However, if borrowing rates rise and the insurer's dividend rate fails to keep pace, it may result in losses.

Investment-Linked Assurance Schemes (commonly known as ILAS) allow policyholders to engage in "fund investment" through insurance. ILAS is a long-term investment where returns are linked to the performance of the chosen funds, with no guaranteed returns. The life protection offered is at least 105% of the account value. Typically, insurance companies provide a variety of funds for policyholders to choose from, covering different regions (such as developed countries and emerging markets), countries (such as the USA and China), or sectors (such as finance and technology). This enables policyholders to invest in markets and industries outside of Hong Kong through ILAS.

When investing in funds, one must be mindful of the fees. In addition to the fees charged by the funds themselves, insurance companies also impose charges, referred to as additional fees. You can compare the fees associated with ILAS to those of fund trading platforms offered by banks or online services. Generally, ILAS does not charge switching fees, which is beneficial for policyholders who frequently trade funds.

The returns of ILAS are tied to the performance of the selected funds. During a rising market, returns can be substantial; however, if the investment underperforms, it may result in a loss of principal. Even if a fund has shown impressive past returns, this does not guarantee future performance. As a side note, unless an insurance intermediary holds a licence from the Securities and Futures Commission (SFC), they are not legally permitted to provide advice on fund selection. Therefore, policyholders need to possess a certain level of investment knowledge.

Further Reading:

【Savings Insurance】Understanding Dividend Types to Avoid Budget Shortfalls When Withdrawing Funds Midway
【Financial Planning 2025】What Constitutes an Ideal Investment Portfolio?

The aforementioned products also provide life protection, though the compensation amount varies depending on the product and will not be elaborated here. This article offers a brief comparison of various insurance products that can be used for savings. In simple terms, returns are proportional to risk. When aiming for higher returns, one must also assess their risk tolerance. If someone promotes a product as offering high returns with low risk, extra caution is advised, and a thorough understanding of the product is necessary. We welcome you to compare insurance plans using 10Life's 《Insurance Decoder》. 

Last updated: 20 August 2025

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.