Life insurance

The purpose of life insurance is to provide financial protection for your family or dependents after your death. Life insurance can provide a one-time or regular indemnity. If you are the breadwinner of your family, you should consider the need for life insurance. Life insurance is also an essential arrangement if you still have debts (such as a mortgage loan) that must be repaid after your death.

Common policy types

Common life insurance policies in Hong Kong include:

• Term life insurance: If you die within a fixed period (ie the policy’s coverage period), the insurance company will pay a lump sum;
• Whole life insurance: This type of policy provides cash value and non-guaranteed dividends (usually increasing each year) while you are alive. Upon your death, your policy beneficiary will receive a one-time death benefit. If you cancel the policy too early, the cash value and dividends of the policy may be less than the premiums you have paid.
• Savings Life Insurance: This type of policy provides cash value and non-guaranteed dividends (usually increasing year by year) during the policy term (note: some savings life insurance policies offer guaranteed dividends). You will receive a lump-sum payment from the policy on the policy maturity date; however, if you pass away before the policy maturity date, the policy will provide a death benefit. If you cancel the policy too early, the cash value and dividends of the policy may be less than the premiums you have paid.

Some life policies may include other types of coverage, such as:

• Critical Illness Insurance: If you suffer from a critical illness covered by the policy, you will receive a lump-sum payment. This insurance can also be purchased separately from your life insurance;
• Disability Insurance: If you are permanently disabled due to an accident, you can get a lump sum payment;
• Income Replacement Insurance: If you become incapacitated due to an injury or illness, you can receive a percentage of your salary to replace your income.

The life insurance such as pension insurance or whole life insurance has a savings component. When life insurance has an investment character and its policy value is linked to the performance of the underlying fund, it is also known as an investment-linked life insurance plan (ILAS ).

Learn about premiums

Insurance companies use several factors to calculate life insurance premiums, such as:

• your background (eg age, health, etc.)
• your habits (eg smoking, hobbies of extreme sports, etc.)
• The type of policy you choose
• the amount of coverage you want

You can lower your life insurance premiums, but this usually means changing your policy accordingly. If you forgo certain coverages (such as critical illness or income replacement insurance), you can reduce your premiums, as is the case with a shortened policy period. However, you should assess your financial commitment to the beneficiary.

You should always consider the cost of insurance, especially long-term payments, based on your affordability.

provide accurate information

Insurance emphasizes the principle of good faith. You must tell the insurance company all necessary information, such as your current health and occupation, when you apply for insurance or renewal. If the information you provide is incorrect, the policy may become void.

Read the policy details carefully

Before buying insurance, you must read the policy details carefully to know exactly what the policy is about. You need to know what your insurance covers and excludes. If you do not understand anything, you should consult your insurance company or insurance intermediary.

Note the cooling-off period

Before deciding to purchase any policy, carefully consider your life insurance needs. Is your main policy objective to protect your family’s life after your death? Or are you ready to make a long-term commitment?

According to regulations, new life insurance policies have a cooling-off period to allow policyholders to review the terms and conditions of their long-term policies. The cooling-off period begins when the insurance company serves you or your representative with the life insurance policy or gives notice (whichever is earlier) and lasts for 21 days.

If you change your mind and wish to cancel your policy, you can give the insurance company a written notice within the cooling-off period requesting a refund of the full premium (with a market value adjustment to the premium where applicable).