Author
Bowtie Team
Updated on
2025-06-03
Disclaimer: This article is translated with the assistance of AI.
All parents seek the best for their children – but when it comes to insurance, does maximum coverage equal optimal care? Bowtie sits down with Ray Lee, former Chairman of Hong Kong’s Financial Planning Institute, to unpack three fundamental principles every parent should know.
Principle 1: Understand the Positioning of Different Products
There are many types of insurance in the market, including life insurance, critical illness insurance, medical insurance, and more. Do you need to buy them all?
Whether to purchase a specific insurance should not only depend on the premium but also on an objective analysis of whether there is a real need. In simple terms, different insurance products have different functions or positions:
| Main Trigger Condition | Main Claim Method | Main Function | |
| Term Life Insurance | Death | Lump Sum Payout | Compensate for the economic loss upon the insured’s death, providing financial support to dependents |
| Critical Illness Insurance | Diagnosis of specified serious illnesses | Lump Sum Payout | Provide financial resources for the insured during illness and recovery, which can be used for treatment, mortgage payments, and more, with no restrictions on use |
| Medical Insurance | Incurrence of related medical expenses | Actual Cost Reimbursement | Cover the insured’s sudden medical bills |
- * The above is just a brief explanation and does not cover all insurance varieties, terms, and claim methods on the market.
Take a newborn child as an example; the economic loss to the family is limited in case of unfortunate passing, so the need for life insurance is relatively low.
Does a child need critical illness insurance? There should be no income loss for children, but if parents want to stop working to provide full-time care for their children, then critical illness insurance has its value. Parents can decide based on their own considerations.
As for medical insurance, its role is quite clear. In a city like Hong Kong with high medical expenses, preparing early for sudden medical costs is almost essential. Therefore, for a child, medical insurance is the most important, followed by critical illness insurance, with life insurance being the least necessary.
Principle 2: Evaluate the Priority of Coverage
When thinking about how to buy insurance for your children, never forget that the core of family insurance planning is that parents are the child’s ‘first line of defense’.
New parents might also take this opportunity to review their own insurance plans. Here are common coverage needs:
| Key Planning Points | |
| Income Replacement | If parents lose their ability to work due to illness or pass away unexpectedly, the family’s income will be interrupted, directly affecting the children’s living expenses and education costs. Therefore, purchasing appropriate insurance is essential.
It is commonly believed in the market that the coverage amount for critical illness insurance should be 3 times the annual income, while life insurance should be 10 times the annual income. This ensures that even in the event of an accident, the family’s lifestyle remains stable for a longer period without immediate disruption. |
| Debt Coverage | For Hong Kong residents, the most common debt is mortgage loans for properties, and you should also consider other debts like personal loans.
The coverage amount for life insurance should be sufficient to cover all debts . It’s worth noting that Hong Kong people may own properties abroad, so you should further consider whether foreign properties involve inheritance tax. If they do, the life insurance coverage amount should account for potential inheritance tax liabilities to avoid financial burdens for family members when inheriting the property. |
Principle 3: Allocate Your Financial Resources Properly
In recent years, sending children abroad for studies has become a standard for middle-class families, and there are many ‘education savings’ plans available in the market.
Many of these plans are essentially life insurance products with a savings component, allowing wealth to grow while providing life coverage.
For example, they offer ‘policyholder protection’, where if parents (the insured) unfortunately pass away or become temporarily disabled, premiums are waived until the policy matures or the parents recover, without affecting the children’s education plans. However, these plans are more expensive, as they serve a dual purpose.
If you want to save on premiums, ‘new parents’ can assess their investment capabilities and risk tolerance to evaluate the possibility of creating your own education savings plan with the following components:
Term Life Insurance + Investment Portfolio = ‘Education Savings Plan’
Term life insurance premiums are cheaper, so the savings can be used for investments, which may yield higher returns, commonly known as ‘Buy Term, Invest the Rest‘.
In fact, with the development of internet finance, information on financial products and strategies has become more transparent.
New parents should compare and shop around before making decisions to build an insurance plan that truly suits their family!
The following content is provided by Bowtie and is unrelated to the article’s author.
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