Savings insurance has become a hot topic on local forums, sparking intense discussions among users. Some individuals who have purchased these plans in the past are now cautioning others against making impulsive decisions. On the other hand, many believe that savings insurance serves as a valuable tool for financial planning and wealth accumulation.
Unlike fixed or current savings accounts, funds in savings insurance cannot be withdrawn or adjusted freely. Early surrender may even result in significant losses.
Unless the invested funds won’t be needed for several years or even decades, those considering savings insurance should be mindful of liquidity issues and the potential losses from early surrender.
The returns from savings insurance typically consist of guaranteed and non-guaranteed parts. In reality, the non-guaranteed dividends often differ from what was initially presented in the proposal. This discrepancy is measured by the “dividend realization rate” (also known as the “bonus realization rate”).
More aggressive savings plans are more likely to have lower realization rates. Therefore, before purchasing, it’s crucial to carefully review the insurance company’s and the plan’s dividend realization rate to determine if the savings plan is trustworthy.
For non-lump-sum savings insurance, the premium amount generally cannot be adjusted during the premium payment period, whether to increase or decrease it. If you wish to temporarily increase premiums, you often have to purchase a new policy. If you want to decrease premiums, you may need to partially surrender the policy, which could lead to a loss of principal and make it impossible to restore the original premium amount.
Savings insurance doesn’t offer enough flexibility to adjust to personal financial changes at different life stages.
For non-lump-sum savings insurance, the premium payment period typically ranges from 5 to 20 years. During this time, your financial needs and income may change unpredictably.
As mentioned earlier, savings insurance has low adjustment flexibility; reducing or temporarily stopping premiums could result in a loss of principal. If you’re not confident about committing to regular premium payments throughout the entire period, consider shortening the payment term or avoiding savings insurance altogether.
For example, a savings insurance plan with a 5-year premium payment period typically has a break-even period of 7 to 10 years, with the guaranteed break-even period being even longer. Even for lump-sum plans, the break-even period is around 3 to 5 years.
If the funds cannot be locked in for a long time (approximately the premium payment period plus an additional 5 to 10 years), savings insurance may not yield substantial returns and could even result in a loss of principal.
Savings insurance includes a guaranteed return component, which, after a certain number of years, ensures at least the break-even point or even some profit.
Additionally, some annuity-like savings insurance plans provide regular guaranteed income distributions, offering peace of mind to policyholders who prefer steady returns.
In reality, people who don’t properly utilize their net cash flow through various tools often end up spending more simply because they have extra money in their bank accounts.
By using a suitable savings insurance plan to accumulate and grow monthly net cash flow over the long term, you can develop good savings habits. This value and significance may be more important in long-term financial planning than the actual returns from the savings plan.
The principle behind savings insurance is that the policyholder entrusts their funds to a financial institution, allowing its professional investment team to manage the investments and share the results.
During periods of low interest rates, fixed deposits may not provide inflation-beating returns. If you lack investment knowledge and experience but still hope for long-term returns of at least 3% to 5%, savings insurance is a viable option.
Life insurance is a financial tool designed to leave assets to beneficiaries. To determine which type of life insurance is better, you first need to understand the purpose behind purchasing it.
If the goal is to hedge against large debts like a mortgage or to cover a child’s education and living expenses for over a decade, then pure life insurance is more suitable. It provides higher death benefits at a lower premium, helping to offset the financial burden on your family in the event of an untimely death.
If you believe that pure life insurance without savings or investment components is more suitable for you, consider Bowtie Life Insurance. This product provides a lump-sum compensation to beneficiaries upon the insured’s death, with features including:
Bowtie Life Insurance has increased its maximum sum insured to HK$20 million. Customers can raise their coverage after financial underwriting and a medical examination.
Want to know why Bowtie made this upgrade and how to increase your sum insured? Click here to learn more.
Whether an insurance company can deliver the dividend returns promised in the initial proposal depends on its ability to consistently execute its investment strategy and operate efficiently. Both tasks are extremely challenging, making it rare for companies to achieve a 100% realization rate consistently.
Additionally, before the Insurance Authority mandated the disclosure of dividend realization rates, some insurance companies might have exaggerated expected returns to attract customers. However, since the mandate, this situation has improved.
Cash value refers to the surrender value of a savings insurance policy, typically consisting of both guaranteed and non-guaranteed parts. This figure can usually be found in the policy’s annual statement, and some insurance companies’ customer apps also allow policyholders to check it.
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