Life Insurance (Including Retirement Protection Products)
Generally, life insurance provides a lump-sum cash payout to beneficiaries upon the insured person’s death, or if the insured becomes unable to work due to an accident or illness. Below is a brief overview of the main types of life insurance:
Term Life Insurance
Term life insurance only pays out a benefit (also called a “death benefit”) upon the death of the policyholder/insured. This type of insurance does not offer dividends or savings features; it purely provides coverage against the risk of death. Term life insurance has a fixed coverage period, commonly 10 or 20 years. If no claim is made during the coverage period, the policy contract will automatically terminate once the period expires.
Whole Life Insurance
Whole life insurance provides a lump-sum payout upon the death of the policyholder/insured or when the policy is terminated. It typically offers long-term and indefinite coverage (usually until the insured reaches the age of 100), as long as premiums are paid on time. The premiums for whole life insurance are usually set at a fixed amount based on the insured’s age at the time of policy purchase and do not increase over time. Unlike term life insurance (which may not pay out anything if it expires), whole life insurance is guaranteed to provide a payout eventually, so its premiums are generally higher than those of term life insurance. Some whole life insurance policies (known as “participating policies” or “with-profit policies”) distribute dividends to policyholders—this is because insurance companies share excess performance returns beyond expectations with policyholders. Premiums for such participating policies are usually higher than those for non-participating policies.
Endowment Life Insurance
Endowment life insurance provides a lump-sum payout either after a specified insurance term (typically 5, 10, or 20 years) or upon the death of the policyholder/insured before the term expires. Therefore, it not only helps policyholders achieve savings growth but also provides life insurance coverage.
Annuities
Annuities are common tools for retirement planning; they help policyholders convert accumulated savings into a steady income over a period of time. There are various types of annuities, with deferred annuities being one of them. During the “accumulation phase,” policyholders need to pay premiums regularly within a specified period. Once entering the “annuity payout phase,” they can receive regular annuity payments.
To encourage people to voluntarily save for retirement, the Hong Kong Government has, since 2019, offered tax deduction incentives to taxpayers who purchase “Qualifying Deferred Annuity Policies” (QDAPs)—deferred annuity products approved by the Insurance Authority. Taxpayers can claim tax deductions for the premiums paid for QDAPs, with a maximum total deduction limit of HK$60,000 per assessment year.
Investment-Linked Life Insurance (ILAS)
Investment-linked life insurance is a type of life insurance policy that combines insurance coverage with investment elements. It provides policyholders with both life insurance protection and investment options (usually different types of funds). The value of the policy is determined based on the actual performance of the “relevant or reference funds.” It is important to note that while policyholders hold the rights to the investment-linked life insurance policy, the relevant assets of the ILAS (usually the relevant or reference funds) are owned by the insurance company.
Employee Compensation and Mandatory Provident Fund (MPF)
Since December 1, 2000, Hong Kong has implemented the Mandatory Provident Fund (MPF) Scheme, which is designed for retirement protection. Both employers and employees should clearly understand their respective rights and obligations under this scheme.
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