How to choose the term of a savings insurance policy? 5 steps to choose a savings plan that suits you.

When purchasing a savings insurance policy, one of the most important questions is: how many years should you choose? Some people hope to get their money back after a few years, while others are making long-term preparations for their children’s education, retirement or even wealth transfer. The savings term required can vary greatly depending on your goals.
Moreover, the “premium payment term” and “policy term” are not the same thing. Even after you have finished paying the premiums, it does not mean that the policy has already recouped its cost. If you only focus on the expected returns while overlooking when you will need the money, surrendering the policy early may mean that the amount you receive is even less than the premiums you have paid.

Therefore, before choosing the term of a savings insurance policy, it is worth considering the following five aspects.

When choosing the term of a savings insurance policy, the first step is not to compare which product offers the highest returns, but to determine your savings goals and when you will need the money.
For example:

• Set aside a sum of money for other purposes in 3 to 5 years
• Prepare to purchase a property or make other life plans in around 10 years
• Pay for your children’s further education in around 20 years
• Prepare for retirement in around 30 years
• Accumulate assets over the long term for wealth succession
   

The more long-term your goal, the longer the period over which your funds can generally accumulate; however, if you will need the money within a few years, you should not lock it away for too long simply because the expected returns of long-term products may be more attractive. In addition to considering “when you will need the money”, you should also consider whether you will need to withdraw a lump sum at that time, or whether you would prefer to make withdrawals in instalments for living expenses, education costs or other purposes. Determining your target term first and then comparing products is more practical than simply pursuing “which savings insurance policy offers the highest returns”.

When people talk about “5-year savings insurance”, they may not necessarily mean that the policy will break even in 5 years.

The premium payment term refers to the period during which premiums must be paid, while the policy term refers to the length of time the policy remains in force. For example, a long-term savings insurance policy may require premiums to be paid for only 5 years, while the policy continues to accumulate value for several decades afterwards. Therefore, “paying premiums for 5 years” does not mean that the policy will definitely break even after 5 years, nor does it mean that surrendering the policy after 5 years would be appropriate.

When comparing the terms of savings insurance policies, you should distinguish between at least the following 4 timeframes:

• How many years do you need to pay premiums for? How long will you need to continue making premium payments?
• When will the policy break even? When will the surrender value reach or exceed the premiums paid?
• When will you need the money? Does this align with your savings goals?
• How long can you hold the policy? Does it meet your long-term needs, such as retirement, education or wealth inheritance?
   

If you choose a shorter premium payment term, the premium payable for each instalment may be higher. Therefore, in addition to considering “how quickly you want to finish paying the premiums”, you should also consider whether your income and cash flow can support the payments.

There is no standard answer; the most important thing is to align it with when you will need to use the money.

If you do not want to lock up your funds for too long, you may wish to explore short-term savings insurance. These products generally have relatively short policy terms, and some focus on guaranteed returns, making it easier to determine the amount you can receive after the specified term.
If your goal is a long-term need such as education, retirement or wealth succession, you may consider savings products with longer policy terms, allowing your funds more time to accumulate. Long-term products also generally include non-guaranteed returns more often, so in addition to looking at the expected total return, you should also understand the guaranteed and non-guaranteed components. However, a longer policy term does not necessarily mean it is better.

If you need to withdraw funds or even surrender the policy in its early years, the surrender value may be lower than the premiums paid. Therefore, when choosing the policy term, you should also consider your future financial needs and retain sufficient liquid funds to cover daily and unexpected expenses.

After deciding on an approximate savings period, the next step is to consider whether you place greater importance on stable returns or long-term growth potential.
Returns from savings insurance are generally divided into guaranteed and projected returns. Guaranteed returns are the benefits that the insurer undertakes to provide in accordance with the policy contract; projected returns include both guaranteed and non-guaranteed returns, with the latter being affected by factors such as the economic environment, the insurer’s investment performance and its bonus policy.

The policy’s Benefit Illustration sets out the projected surrender values and death benefits under different scenarios, enabling policyholders to understand how returns may vary in different circumstances.

When rating long-term savings insurance, the 10Life professional team evaluates products from three aspects: guaranteed returns, projected returns under the base scenario, and the company’s bonus fulfilment rate.
To better cater for the needs of different policyholders, 10Life has established four financial goals: Golden Ten Years, children’s education and further studies, retirement planning and wealth inheritance, corresponding to savings target periods of 10, 20, 30 and 60 years respectively.

10Life first calculates the product’s guaranteed return score, projected return score and bonus fulfilment score, and then sets the relevant weightings according to the product’s risk level to calculate the overall score.

Products are mainly divided into two risk profiles:

• Stable risk level: Greater emphasis is placed on return stability, so the weighting of the guaranteed return score is higher.
• Growth risk level: Greater emphasis is placed on long-term return growth, so the weighting of the projected return score is higher.

As for the bonus fulfilment score, its weighting is uniformly set at 10%.

In other words, a longer term is not necessarily better, and a higher projected return is not necessarily better either.

If you place greater importance on the minimum return available at the specified term, you may wish to place greater emphasis on guaranteed returns. If your savings goal is more long-term and you are willing to accept a greater non-guaranteed component, you may consider products that place greater emphasis on long-term growth.
Therefore, after determining the savings term, you can compare the guaranteed and projected returns of different products with the same target term according to your financial goals and risk profile.

If the expected return of a product includes non-guaranteed bonuses, in addition to the expected figures in the benefit illustration, you can also take note of the insurer’s Fulfillment Ratio.

Fulfillment Ratio is used to compare the non-guaranteed benefits actually paid by insurers with the figures in the original benefit illustration. It can serve as one reference for understanding an insurer’s historical bonus performance. For example, a product’s expected return may appear high, but if most of it comprises non-guaranteed benefits, the uncertainty surrounding the actual return is also higher. Therefore, when comparing products, you should not look only at the final expected amount.

However, you should also note that historical Fulfillment Ratios do not represent future performance, and data for different products, currencies and types of bonuses may not be directly comparable.

If you are still unsure how many years you should choose, you can start by answering the following 5 questions:

1. When will you need to use the money?
2. How many years of contributions can you afford?
3. Is there a chance that you will need to use the funds during the contribution period?
4. Do you place greater importance on guaranteed returns, or are you willing to accept the uncertainty of a higher proportion of non-guaranteed returns?
5. At the end of the target term, will you need to withdraw the money as a lump sum or in instalments?

For example, even when saving for retirement, someone who is only 10 years away from retirement and someone who is still 30 years away from retirement may need to consider different terms, return structures and liquidity requirements. Therefore, when choosing savings insurance, you should not simply pursue the “highest return”. Instead, you should first consider when you will need the money, how long you can make contributions for, and how much non-guaranteed returns you are willing to accept.

Once you have determined your savings goal and term, you can use 10Life savings insurance comparison to compare more than 190 savings insurance plans, understand the guaranteed returns, expected returns and 10Life ratings of different products for various target terms, and select a product that better suits your needs.

Should you choose a long-term or short-term savings insurance policy?

This mainly depends on when you need to use the money, the premium payment period you can accept, and whether you need to maintain liquidity during the policy term. If you have a definite need for funds within a few years, pay particular attention to the product’s breakeven period and early surrender value. If your goal is more long term, you can compare the guaranteed and projected returns of products with longer policy terms.

Is a shorter premium payment period always better?

Not necessarily. A shorter premium payment period means you can complete your payments sooner, but the premium for each payment may be higher, and completing the premium payments does not mean you have reached the breakeven point. When comparing products, you should consider the premium payment period, breakeven period and surrender value at the target policy term together.

Can you immediately recover the principal after completing the premium payments for a savings insurance policy?

Not necessarily. The premium payment period and breakeven period are two different concepts. Even after all premium payments have been completed, the surrender value at that time may still be lower than the premiums paid. The actual situation depends on the terms and conditions of the product.

Can you surrender the policy early if you need the money during the policy term?

Generally, you can apply to surrender the policy, but particularly during the early years of the policy, the surrender value may be lower than the premiums paid. Before taking out a policy, you should understand the surrender values for different policy years and other withdrawal arrangements, and set aside sufficient liquid funds.

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.