[Misled into premium financing] 5 common pitfalls: thought they were buying savings insurance, but ended up with debts of millions.

Originally, they only wanted to renew a fixed deposit, or find a secure savings insurance policy. Yet when the “premium payments” suddenly increased, they discovered that they had taken out a bank loan worth several million dollars. However, during the application process, no one had clearly explained the words “premium financing”. Among the cases for help that 10Life has handled, this situation is not uncommon.

In simple terms, premium financing means borrowing money to buy a large savings policy. If the policyholder understands the risks, is in a low-interest-rate cycle, and the policy performs as expected, it can be a tool for earning an interest spread, so premium financing is not inherently a problem. However, the risk of premium financing lies in the fact that interest rates can change, returns may not meet expectations, and the bank may also demand early repayment. This time, the 10Life insurance comparison platform has compiled 5 common features of those who accidentally fall into premium financing, as well as the key points that must be clarified before signing.

When using premium financing, you are not simply buying an insurance policy; you are simultaneously entering into two separate contracts: one policy with the insurer, and another loan agreement with the bank.

Taking a policy with a premium of HK$5 million as an example, if the bank provides 80% premium financing, the policyholder only needs to pay HK$1 million स्वयं; the remaining HK$4 million is borrowed from the bank. This allows the policyholder to use leverage to increase the insured amount and seek potentially greater returns. 

What are the benefits of premium financing? How can the plan be made to work? Policyholders can use less of their own funds to purchase a larger policy. If the policy’s actual return is higher than the loan interest rate, they can earn the interest spread and use leverage to magnify returns. As such, some professional clients who are adept at financial planning and have a certain grasp of interest rate trends do indeed have the opportunity to profit from premium financing. 

However, part of the policy’s return is non-guaranteed. If the actual performance falls short of expectations, the loan interest still has to be paid in full. In addition, if interest rates rise, returns may be further eroded and the payback period may be extended. Furthermore, the bank may also issue a margin call. If the policyholder does not have sufficient cash on hand to repay the loan, they may be forced to surrender the policy early. In that case, the surrender value may be lower than the premiums already paid, and the original plan may be thrown into disarray.

To learn more about how premium financing works, the interest spread and the different risks involved, please refer to [Premium Financing] Borrowing to buy insurance and earn the interest spread? Understand the fatal pitfalls of high returns.

1. Initially only wanted a prudent way to manage finances, but was attracted by “higher returns”

Many people originally only went to the bank to renew a fixed deposit, or because an old policy had just matured and a sum of money needed to be reallocated. They only wanted to earn steady interest, but sales staff recommended a savings insurance plan with “low premiums, high returns, and more attractive than a fixed deposit”, and they were drawn in and signed up without fully understanding it.

2. Talking about “premiums” but not mentioning “interest payments”, deliberately downplaying the nature of the loan

In the cases 10Life came across, when many retired people were being sold these plans, the sales staff only mentioned the monthly “premium amount” and said nothing about “interest payments” or variable interest rates, deliberately downplaying the true nature of premium financing and making the victims think it was not much different from a normal savings insurance policy.

3. Pressured to sign, with insufficient time to check documents and information

In addition, some victims had dealt with the same bank for many years and trusted it to some extent. When sales staff emphasised “high returns”, “sign before a certain date to get a rebate”, and “the documents have already been filled in for you”, saying “just follow along and sign”, they did not properly understand the policy before signing up because of their familiarity with the bank. Moreover, during the signing process, the sales staff only briefly displayed the signature positions on a computer or tablet, flipping through the pages rapidly and asking customers to sign consecutively in a short period of time, leaving no adequate time to check the information and terms item by item. If this is the situation, everyone should be careful not to fall into a trap.

4. Information filled in by staff on behalf of the customer; affordability assessment can easily become inaccurate

If information such as income, assets and the purpose of insurance is filled in by the sales staff on the customer’s behalf, the figures may be inflated, making it appear on the surface that the customer meets the affordability requirements for taking out a large policy. Once the content does not match the actual situation, but the customer has already signed to confirm it, it may later be treated as information confirmed by the customer.

So, familiarity is familiarity. Before signing, take a few minutes to go through everything from the beginning. In particular, when a large policy and a loan are involved, the more someone urges you to sign quickly, the more you should stop and check the figures and terms carefully first.

5. When interest rates are low, “premium payments” may seem manageable, but the burden after rate hikes has not been considered

With global instability and unpredictable black swan events, once interest rates suddenly fall, it becomes a golden opportunity for premium financing sales. Sales staff can then calculate a lower “premium payment” based on the prevailing interest rate. At this point, everyone should pay attention to whether this “premium payment” is fixed, how it is affected by interest rates, and how much the monthly payment would change if interest rates rise (for example, by 1% or 2%).

After reviewing numerous premium financing cases, 10Life believes that the issue is not confined to isolated sales cases, but warrants regulatory scrutiny of potential mis-selling practices in the market, in order to strengthen consumer protection.

Accordingly, on 23 July 2026, 10Life wrote separately to the Insurance Authority and the Hong Kong Monetary Authority to raise public enquiries regarding issues such as the sale of premium financing, affordability assessments and risk disclosure.

These include:

• If a customer’s declared assets are overstated, how does the current mechanism identify the issue?
• If premiums are paid mainly through loans, should outstanding principal and interest be taken into account when calculating the level of protection required?
• Should policy benefits, loan interest and other financing costs be calculated together?
• Should all premium financing cases be required to verify the customer’s income and assets?
• Should customers be shown the actual repayment burden after an increase in interest rates?

The relevant open letters have been published on the 10Life platform; once a response is received from the regulators, 10Life will publish it as well.
Further reading: 【10Life publishes open letters regarding premium financing cases, urging the Insurance Authority and the Monetary Authority to respond】

Premium financing involves leverage, so you should not decide based solely on the statement that “the policy return is higher than the loan interest”. Before signing, you should at least be able to answer the following 6 questions clearly:

1. Do I know that I am borrowing money to buy insurance?

This is not “paying premiums by instalments”; it is a genuine bank loan, and you will need to pay interest.

2. What is the sum assured? How much do I need to pay? How much is borrowed from the bank?

You need to know the principal amount of the loan, and how much of the total premium is financed by the loan.

3. What has the recent interest rate trend been? If rates rise, can I still afford it?

When arranging premium financing, you should not only look at the interest rate at the time of application. If the loan terms are on a floating rate, the repayment amount will change with market interest rates. Generally speaking, the interest rate may be calculated based on HIBOR (Hong Kong Interbank Offered Rate) plus a percentage, or on the bank’s Prime Rate (P) minus a percentage. In other words, if market rates rise, the loan interest you have to pay may also increase accordingly.

Due to the linked exchange rate system, Hong Kong interest rates are affected by the US Federal Reserve’s interest rate cycle. However, most people may not constantly monitor interest rate movements, and may not know how much their loan burden will increase if rates turn. So when taking out a policy, do not just look at the bank’s displayed “current monthly repayment”; you should also understand recent interest rate trends, and how much extra interest you would need to pay each month or each year if rates rise by 1% or 2%.

4. How much of the policy return is guaranteed, and how much is non-guaranteed?

When the sales representative tells you the policy’s rate of return, you must clarify whether this is guaranteed, or an expected return (including the non-guaranteed component). If the product includes non-guaranteed dividends and the dividends fall short of expectations, the breakeven period will be delayed. Therefore, you may refer to the product’s dividend illustration, if any, or the insurer’s historical dividend fulfilment ratio.

5. If I need money within the next two or three years, how much can I get back?

Before arranging premium financing, you should also check whether you have sufficient cash on hand for emergencies. Do not lock up most of your funds in the policy; at the very least, keep some liquid assets to cover medical expenses, family living costs or other unexpected needs. If you need to access funds early, you should first understand the surrender value each year. Especially in the early years of a policy, the amount you get back upon early surrender may be less than the premiums paid, and you may even lose your principal.

6. Under what circumstances will the bank call the loan?

The policyholder should fully understand the loan terms, whether the loan is renewed annually, whether asset verification is required upon renewal, and what situations may trigger a bank call loan (i.e. requiring the policyholder to repay early), such as whether a specified deposit balance must be maintained in the bank account.

As interest rates rise, the room for earning an interest spread narrows

When interest rates rise, the loan interest that has to be paid also increases, narrowing the room for policyholders to earn an interest spread.

If returns fall short of expectations, the time to break even may keep getting longer  

Some returns under savings insurance are not guaranteed, and the dividends actually paid out may not be as expected at the time of purchase. If the dividend realisation rate is low, actual returns may be below expectations, and the time to break even may also be extended.

A bank may suddenly call the loan

Premium financing involves borrowing against a policy as collateral. When a customer’s financial position changes, the bank faces a liquidity shortage, or the loan fails to pass the bank’s asset review when it comes up for renewal upon maturity, the bank may require you to repay the loan early, commonly known as a call loan.
 

If you do not have enough cash on hand to make the repayment, the policyholder may need to surrender the policy early and use the surrender value to repay the loan. However, savings insurance usually needs to be held for a period of time before the policy value gradually accumulates; if it is surrendered too early, the amount received is often lower than the premiums paid. In other words, not only may the expected return fail to materialise, but it is also possible that even the premiums already paid cannot be fully recovered.

As mentioned throughout, premium financing itself is not a trap, but a legitimate financial planning tool, and some people do use it to achieve their financial goals. However, premium financing is still a relatively high-risk and structurally complex arrangement, and is not suitable for everyone, especially retirees or those who prefer prudence and may not be able to tolerate substantial risk.

If you or a family member are in any of the following situations, you should be especially careful:

• Only wanting a stable interest return, but being attracted by “higher returns than a fixed deposit” and signing up without fully understanding the details
• The sales pitch only mentions “monthly instalments”, without referring to “interest repayment” or variable interest rates, thereby downplaying the nature of the loan
• Being rushed into signing, without sufficient time to check the documents
• Income, assets and the purpose of taking out insurance are filled in by staff on your behalf, resulting in an inaccurate affordability assessment
• Calculating the “instalment” based on the then lowest interest rate, without considering the actual burden after an interest rate rise

If you suspect that you took out a product involving premium financing without fully understanding it, you should retain the policy, loan documents, benefit illustrations, communication records and bank statements, so that you can review the entire arrangement and take follow-up action.

If you encounter suspected poor insurance sales practices or claims difficulties, you may also contact 10Life via WhatsApp at 3705 1599.

Premium financing is a legitimate wealth management tool, but it always involves borrowing and leverage. The risk is higher than that of ordinary savings insurance, so it is not suitable for everyone. In particular, if you simply want stable interest income, are preparing for retirement, have a relatively fixed monthly income, or do not have much cash set aside for emergencies, you should be especially cautious. This is because if interest rates rise, the policy returns fall short of expectations, or the bank requires early repayment, the actual financial burden can be far greater than initially expected.

Further Reading

• [Premium Financing] Borrow money to buy insurance and earn the interest spread? Understand the deadly trap of high returns
• [Insurance Clinic: Premium Financing] 65-year-old retired granny falls into the “insurance death trap” and is left with a HK$5 million debt!
• [Insurance Clinic] Turned a regular policy into borrowing money to buy savings insurance; a bank’s sudden loan call exposes the sales trap
• [10Life’s open letter regarding premium financing cases, urging the Insurance Authority and the Monetary Authority to respond]

Last updated: 31 August 2026

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.