Prudent wealth management! Four essential steps to choosing savings insurance

In recent years, with the Hong Kong stock market fluctuating and the property market remaining weak, investors seeking relatively higher stability may consider savings insurance, which offers the advantage of guaranteed returns. However, the savings insurance products available on the market are highly diverse. If policyholders wish to achieve different financial goals, how should they choose a savings insurance plan? This article outlines four steps for selecting savings insurance, helping policyholders understand how to use savings insurance to grow their wealth steadily over the long term.

Before taking out a policy, the policyholder should think about this: what is the purpose of saving? This financial goal varies from person to person. For example, it may be to support a child’s overseas education, prepare for one’s own retirement, set aside a medical reserve, save for a property deposit, or raise start-up capital for a business. Others may already have accumulated a certain level of wealth and wish to preserve and grow that capital, allowing it to compound over time and pass their wealth on to the next generation, giving them more resources to pursue their own path.

Once the goal is clear, one can then ask: how much money is needed to achieve it? When will this sum be required, in other words, how long is there for the money to grow towards the target? Will the funds need to be withdrawn in a lump sum in the future, or in instalments? These questions all help the policyholder choose a suitable term and type of savings insurance.  

There are many financial tools available in the market, and savings insurance is just one of them. It is advisable to first understand the features of different tools, and to identify your own investment approach and risk tolerance. The advantage of savings insurance lies in its guaranteed returns: after a specified period, you may recover your capital, and then continue to roll it over, allowing time to build wealth, while the policyholder does not need to manage it actively.

Savings insurance also comes in different types, enabling different financial goals to be achieved. If classified by policy term, it can be divided into short-term savings insurance and long-term savings insurance. The premium payment period for short-term savings insurance is generally 1 to 2 years, and it usually offers fully “guaranteed returns”. The policy term is generally 3 or 5 years, with some extending to 8 years.

→Compare short-term savings insurance

Long-term savings insurance offers more premium payment options, such as single premium, 1 year, 5 years, 10 years, 15 years, or even 25 years. You can choose how much and how long to pay according to your affordability. In addition, while paying for insurance, you should also retain other sources of liquidity and avoid surrendering the policy in the early stages, as this may result in a loss. However, as long as you continue making regular premium payments and leave the savings insurance alone for a period of time, the bonuses will continue to accumulate, providing both “guaranteed returns” and “projected returns”. 

If you wish to use savings insurance to achieve your financial goals, you can start comparing different products in the market.

Taking the popular long-term savings insurance products in the market as an example, these products offer both “guaranteed returns” and “projected returns”. Projected returns are also known as total returns and include non-guaranteed components; they are the most eye-catching figures. When comparing different products, policyholders can compare the cash value at the target policy term, the ratio of returns to premiums, and the internal rate of return. These three indicators can each be shown separately for the guaranteed and non-guaranteed portions.

→Compare long-term savings insurance

Generally speaking, products with higher “guaranteed returns” are backed by relatively lower-risk assets, such as a larger proportion of bonds. Conversely, products that place greater emphasis on “projected returns” involve more higher-risk assets with greater potential for value appreciation, such as equity investments.

Finally, it is worth noting that “non-guaranteed returns” are uncertain. Insurers determine the dividends to be distributed based on factors such as market conditions, investment strategy, dividend policy and operating expenses. The actual amount paid may be higher or lower than the expected investment returns stated in the benefit illustration document, and the “Fulfilment Ratio” is used to measure the ratio between the actual amount paid and the non-guaranteed returns stated in the sales proposal.

To assess the reference value of a product’s non-guaranteed returns, you can review its historical fulfilment ratio. However, insurers update their data at different times, and because participating products involve different currencies and dividend types, the presentation can be complex and difficult for the general public to understand. Therefore, policyholders may also refer to 10Life’s “Company Dividend Fulfilment Score” to compare insurers’ historical fulfilment ratio performance.

In fact, savings insurance also offers a wide range of product features to cater to the needs of different policyholders, such as currency conversion options, death benefits, different dividend types and the ability to change the policyholder. Prospective policyholders should consider these factors together. Moreover, everyone has different risk tolerance and financial goals, so choosing a savings insurance plan that suits you is not easy. If you need professional assistance or have any questions, you may consult a licensed insurance adviser at 10Life. 

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.