[Insurance Clinic] Turning a term policy into a loan to buy a savings policy; sudden bank call loan exposes a sales trap

In 2021, Ms S (a pseudonym) had just sold her owner-occupied property and planned to move house a year later. She went to the bank to enquire about a mortgage and intended to place the funds in a fixed deposit first, withdrawing them a year later to pay the deposit. However, the bank staff said that a savings insurance policy would deliver better returns: by making a one-off payment of more than HK$280,000, followed by monthly premiums of around HK$3,000, she could receive more than HK$800,000 after 10 years. After strong persuasion from the bank staff, Ms S eventually took out a savings insurance policy. 

At the end of 2023, Ms S received a debt collection letter from the bank, demanding repayment of the principal and interest of more than HK$720,000. She found this very strange at the time and did not understand when she had borrowed the money. She then called the bank’s credit department and learned that, without her knowledge, she had applied for a loan of more than HK$720,000 from the bank in 2021 through a “premium financing” arrangement. The loan arrangement had now been cancelled, and she was required to repay the full loan amount and interest immediately. It was only then that she realised the monthly payments she had thought were for insurance premiums were actually just interest repayments. She tried visiting a bank branch to find out how she could delay repayment. A bank staff member first suggested that she surrender the policy and use its cash value to repay the HK$720,000 loan, but the initial HK$280,000 in contributions would then be lost; later, the bank staff member said that if Ms S deposited assets worth HK$1 million with the bank, the loan might be reinstated. Unsure what to do, Ms S sought help from 10Life.

For ordinary bank loans, as long as borrowers regularly repay the interest, banks very seldom suddenly “call the loan” and require borrowers to repay the loan early, which would make it difficult for borrowers to plan their finances. However, in the case of mortgage loans, when a property falls into negative equity, the bank handling the mortgage may, to protect its own interests, also “take down the umbrella when it rains” and “call the loan” early. But with premium financing, the loan amount is usually not higher than the policy’s guaranteed cash value. If the borrower does not pay the interest, since the policy has already been pledged to the bank, the bank has the right to cancel the policy and offset the debt with the policy’s guaranteed cash value. Therefore, the bank bears very low lending risk in premium financing, and so sales consultants generally do not mention the possibility of a “call loan”.

It is indeed hard to understand why Miss S, who had been paying interest all along (although she thought she was paying for her insurance), was suddenly “called” by the bank. However, when 10Life looked more closely into the bank’s loan terms, it found that the bank has the right to “call the loan” at any time, as set out in the following terms: 

According to the statement and documents provided by Ms S, the 10Life team found that bank branch staff displayed many unfair practices during the sales process, and were suspected of concealing and deceiving Ms S into taking out high-risk premium financing.

1. The bank staff ignored Ms S’s financial needs. She originally wanted to place funds in a low-risk fixed deposit and would need to use the money as a down payment for a property upgrade one year later, but the bank staff persuaded her to take out a longer-term savings insurance policy instead.
2. According to Ms S’s recollection, the bank staff focused solely on promoting the savings insurance to her and did not mention any loan arrangement or premium financing, thereby inducing her to apply for a loan without her knowledge. During the process, they also failed to explain the liquidity risk and the risk of rising interest rates involved in this arrangement.
3. The bank staff entered false information in the policy application documents. For example, Ms S was stated to be single; however, in the “Declaration of Source of Wealth” section, the bank staff entered “spouse” as supporting Ms S’s premium payments, with the “spouse” having an income of HK$50,000. In addition, the bank staff falsely stated that Ms S had a tertiary education or above, when in fact she had only graduated from secondary school in Mainland China. 

Based on the multiple doubts and procedural errors mentioned above, 10Life, on behalf of Miss S, argued the case forcefully with the bank. After repeated negotiations, the bank not only stopped the “call loan”, but also refunded the insurance premium financing-related premiums and interest to Miss S, compensating her with more than HK$300,000.

Afterwards, Miss S sent a fruit basket to 10Life, together with a thank-you card to express her gratitude.  

In the market, it is not only the sales practices of premium financing products that have issues; many other insurance products may also have plenty of hidden pitfalls. The above case is likely only the tip of the iceberg. If you have also encountered poor insurance sales practices, or are facing great difficulty when making a claim, please contact 10Life via WhatsApp at 37051599. Upholding its mission to “make fair insurance a reality”, 10Life will do its utmost to fight for insurance victims.  

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.