Technical Savings and Investments Information

TYPES OF INVESTMENT-LINKED LONG TERM INSURANCE POLICIES

Investment-linked long term insurance policies can be divided into two groups:

1. Investment-linked annuities – this is a type of annuities whose annuity payment is variable according to the performance of the investment funds. Annuities are not common in Hong Kong due to the lack of demand.
2. Investment-linked life insurance – the more common linkages are with whole life and endowment. It should be noted that the most popular type of investment-linked long term insurance policy sold in Hong Kong is known as “flexible premium variable life insurance” or “variable universal life” or “universal variable life” in the US. The policy, in addition to the investment linkage, also offers premium and sum assured flexibility. Therefore, besides the characteristics of investment-linked long term insurance policies we mentioned, these policies may also include (but not mandatory) some of the following features:
   1. It usually offers flexibility in premium payments, although single premium payment options are also offered. It allows the policyholder to increase or decrease the amount of regular premiums, add top-ups to the policy at any time, or even skip premium payments for a period of time (take premium holiday), provided that the policy value is sufficient to cover the mortality charges and fees.
   2. It offers flexibility in the sum assured. The policyholder can adjust the sum assured of the policy. Increase in sum assured is usually subject to evidence of insurability. 
   3. It offers three options of death benefit. The policyholder can choose between a level death benefit option, an increasing death benefit option, or a 101 Plan.
   4. It allows withdrawal from the policy provided that the remaining balance is sufficient to cover mortality charges and fees and no debit interest is incurred.  It is however important to note that the above mentioned special features, and in particular the flexibility, are offered at a cost. The policyholder is to pay continually a higher level of charges throughout the term of the policy, even when he/she ceases paying into it, especially when he/she tops up the payment. In the following sections, we will focus our discussion on this type of investment-linked policy.