【Policy Loans 2022】Compare policy loan interest rates in one article! What risks should you watch out for? | 10Life

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Withdraw bonuses from a savings insurance policy

If you want to "take money out" of a savings insurance policy, this involves how much cash value and bonuses have accumulated in the policy during the coverage period. First, regarding withdrawing bonuses: when you took out the policy, your insurance advisor should have explained the expected bonuses (for example, annual bonuses), but in practice how much bonus is in the policy depends on how long it has been allowed to accumulate and the premium payment period.

For example, Mr. Chan took out a long-term savings insurance policy a little over five years ago that requires 18 years of contributions, with a monthly premium of US$698. To date he has paid US$46,812 in premiums, and the accumulated bonuses amount to US$1,118. Generally speaking, withdrawing bonuses will not affect the policy's guaranteed cash value or life coverage, but the compounding/accumulation effect will be reduced.

Withdraw cash value from a savings insurance policy

Since bonuses may not be substantial, is it feasible to withdraw the cash value from one’s own policy? According to Mr. Chan’s example above, the cash surrender value available in his policy is US$8,705, together with accumulated dividends of US$1,118, so if he surrenders the policy now he could withdraw a total of US$9,823.

However, compared with the premiums already paid of US$46,812, Mr. Chan would be forfeiting 79% of the premiums paid. It is worth noting that if a customer has taken out a savings policy together with riders, the coverages provided by the latter (which may be medical, life, or accidental) will also be terminated when the savings policy is surrendered.

Policy loans charge interest of 5.5% to 10%.

Another emergency option to consider is a policy loan. Generally, after the initial premium payment period is completed, a policyholder can apply to the insurer for a policy loan to withdraw the policy's cash value. Unlike surrendering the policy, by taking a policy loan the coverage of the savings policy and any attached riders (if any) can continue.

The maximum loan amount for a policy loan is usually 80% to 90% of the policy's accumulated cash value, depending on the product. Of course, policy loans also incur interest, typically at an annual rate of 5.5% to 10%.

Additionally, some policyholders may wish to temporarily stop paying premiums to ease financial pressure. In fact, for some savings policies, if a policyholder stops paying premiums on their own, a policy loan may be automatically triggered, meaning they would incur loan interest; other savings policies may result in policy termination when premiums are stopped, so weigh the pros and cons before making this decision.

Insurance companies' savings policies	Policy loan interest rate (per annum)
AIA	7% (USD and HKD policies effective after 1977)
AXA	8%
BOC Life	7.5% to 10%
China Life	7%
FT Life	8%
FWD	6%
HSBC Life	7% (policies before 1 December 2018); 5.5% (on or after 1 December 2018)
Manulife	10%
Prudential	8%
Sun Life	8%
Note: Policy loan interest rate information updated to 28 April 2022; subject to the insurers' announcements.

"Borrow or not? Don't borrow unless you can pay it back."

If you choose a policy loan, you will of course have to pay loan interest, which the insurer will deduct from the remaining cash value. In addition, if the policy is still in the premium-paying period, the policyholder must continue paying premiums during the loan; if the policyholder stops paying premiums, the remaining cash value will be further reduced, effectively increasing the amount borrowed. However, if the remaining cash value and bonuses in the policy are less than the outstanding loan balance, the policy may be terminated.

Referring again to Mr. Chan’s example, if he borrows $6,000 through a policy loan, the cash value falls to $2,705. The loan’s annual interest rate is 8%, which means $40 in interest per month. Since he needs to pay monthly premiums of $698, if he also stops paying premiums, the cash value of the savings insurance policy will only “last” another four months; if he does not repay or resume paying premiums, the policy will be terminated. So when deciding whether to borrow, always remember: “Borrow or not? Only borrow if you can repay.”

Savings insurance: pay attention to liquidity risk

One last reminder: most whole-life savings insurance policies are long-term. Through consistent saving, the insurer can make use of compounding effects to accumulate wealth for the client over the long run. However, the liquidity of funds in typical savings policies is not high, especially in the early stages of the policy. As in Mr. Chan’s case above — a policy with an 18-year premium payment period but with only a little over 5 years of premiums paid — its cash value is limited (relative to the premiums paid). If the policy’s premium payments have been completed, the cash value can be expected to exceed the premiums paid.

Therefore, insurance advisers should perform a Financial Need Analysis when selling, to ensure the client can afford the premiums during the payment term, and should make sure the client understands the liquidity risk.

Many people’s incomes have fallen sharply under the pandemic, but if you intend to use a policy loan or surrender the policy, you should discuss it clearly with your insurance adviser. If you want a second opinion, you can use 10Life’s “Ask Questions Anonymously” to get immediate replies from multiple licensed advisers.

Note: This article was last updated on 28 April 2022

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.

10Life 編輯團隊

團隊成員由一群資料搜集員組成，主力保險相關資訊研究。

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10Life 編輯團隊

團隊成員由一群資料搜集員組成，主力保險相關資訊研究。

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Table of Content

【Policy Loans 2022】Compare Policy Loan Interest Rates in One Article! What Risks Should You Be Aware Of?

Withdraw bonuses from a savings insurance policy

Withdraw cash value from a savings insurance policy

Policy loans charge interest of 5.5% to 10%.

"Borrow or not? Don't borrow unless you can pay it back."

Savings insurance: pay attention to liquidity risk

Table of Content

Trending

Table of Content

【Policy Loans 2022】Compare Policy Loan Interest Rates in One Article! What Risks Should You Be Aware Of?

Withdraw bonuses from a savings insurance policy

Withdraw cash value from a savings insurance policy

Policy loans charge interest of 5.5% to 10%.

"Borrow or not? Don't borrow unless you can pay it back."

Savings insurance: pay attention to liquidity risk

Table of Content

Trending