With the highest per capita life insurance premium in the world, why Hong Kong still has such a big Mortality Protection Gap? (Updated on Feb 2021)

The overall protection gap in Hong Kong is as much as HK$6 trillion, according to a study published by the Hong Kong Insurance Authority earlier last year (note 1). The study shows that the mortality protection gap per working person is HK$1.67m, equivalent to 5.4 times the average annual salary. However, the Hong Kong life insurance premium per capita is the number 1 highest in the world. At HK$64,000 per capita, it is four times higher than the US, and much higher than other mature markets in Asia such as Singapore, Taiwan and Japan (note 2). How is that possible? Can this protection gap ever be closed?

Mortality Protection Gap is the difference between the amount needed to substitute a household’s future income if a major income earner dies, and the existing resources available (e.g. cash, investments, life insurance) to repay outstanding debts (e.g. mortgages) and maintain living standards (e.g. dependents’ ongoing living and education expenses).

Insurance companies and intermediaries in Hong Kong often talk about the big protection gap and ask us to buy more insurance. But Hong Kong already has the world’s largest life insurance premium per capita – aren’t we already buying enough life protection? The mortality protection gap can be explained by the fact that Hong Kongers are buying mainly whole life insurance which focusses on savings over protection, hence the death coverage may not be sufficient. The term life insurance market is Hong Kong is still relatively small, as many Asians tend to prefer savings over buying pure protection. Further, as term life insurance has low premiums and therefore limited commissions compared to whole life insurance, intermediaries tend to be less keen on selling.

From a coverage perspective, there is a huge difference between term life insurance (no savings element, only covers for a defined term) and whole life insurance (with savings element, life-time coverage). Within whole life insurance there are products that focus more on wealth accumulation, and other more conservative products that offer certain death coverage. The latter type is used to compare with term life below. For the same first year death benefit of HK$1m, the death benefit multiplier (sum assured per premium paid) differs substantially between the two product types. 

It turns out that to close the per capita mortality protection gap of HK$1.67m, a person (assuming age 35, male, non-smoker) only needs to buy a term life policy for around HK$1,500 per annum or less. Compared to the total per capita annual premium of over HK$60,000 it is not that Hong Kongers are not buying enough insurance, but we are just not buying enough protection focused products. If you already own an existing whole life policy, you only need to add a term life policy to enhance your protection and reduce your mortality protection gap substantially. If you do not want to go through an insurance intermediary, some of the term life insurance products can be purchased directly online. Some examples are as follows: 

1. Insurance Authority, “Hong Kong Protection Gap (Mortality) Study” (in Chinese)
2. Swiss Re Sigma 2019/03, Insurance density: life insurance premiums per capita for Hong Kong USD$8204 (assuming HKD/USD FX @7.8)
3. The above information is provided by 10Life