Author
Bowtie Team
Updated on
2025-07-21
Disclaimer: This article is translated with the assistance of AI.
Starting July 1, caps on illustration rates for participating policies kick in. Wondering how this shakes up your savings insurance? The Bowtie Insurance Info Team dives in to explain it all.
Participating Policy Illustration Rate Cap Starts July 2025
In late February 2025, the Insurance Authority announced the Practice Note on Illustration Rate Cap for Participating Insurance Benefits , setting an upper limit on illustration rates for participating policies. For HKD policies, the cap is 6%, and for non-HKD policies, it’s 6.5%. This will be updated at least annually, with the measure taking effect on July 1. The Insurance Authority states that capping illustration rates helps prevent mis-selling and ensures potential returns are realistically achievable.
Factors Affecting Participating Insurance Returns
Returns on participating insurance depend on various factors, including claims, investment performance, market risks, and expenses. Actual returns may be higher or lower than those listed in sales materials.
Illustration Rate Cap Affects IRR in Various Scenarios
The illustration rate cap covers multiple areas, including various scenarios (base case, pessimistic, optimistic), as well as all premium payment methods and policy options. Currently, the market often uses internal rate of return (IRR) to compare savings insurance, so future products’ IRR will be limited by these illustration rates.
Expected Return Scenarios
When selling participating policies, insurers provide potential policyholders with a benefits illustration document. This lists surrender values and death benefits under different expected return scenarios (base case, optimistic, and pessimistic) to help applicants understand potential return variations.
Reviewing Current USD Products with Rate Cap
According to the Insurance Authority document, the illustration rate cap for non-HKD policies is 6.5%. Using data from an insurance comparison platform, we found that some products’ 30-year expected IRR (base scenario) is very close to or has reached the 6.5% cap, while their 60-year expected IRR (base scenario) figures are even higher, all exceeding the non-HKD policy illustration rate cap.
Table: Reviewing Expected IRR for 3 Savings Insurance Products (Base Scenario)
| Savings Insurance | 30-Year Expected IRR | 60-Year Expected IRR |
| Company F | 6.5% | 7.0% |
| Company A | 6.4% | 6.9% |
| Company M | 6.3% | 6.9% |
Data source: 10Life. Assumes policyholder is a 35-year-old male, premium payment period 1 to 4 years, USD policy.
Fulfillment Ratio
The Insurance Authority’s Guideline GL16 requires insurance companies to publish the fulfillment ratio for non-guaranteed benefits of participating policies, demonstrating how well they deliver on projected non-guaranteed benefits.
The fulfillment ratio can be simply understood as the total amount of accumulated non-guaranteed benefits actually paid out across all relevant policies, divided by the total amount stated in the benefit illustration documents at the time of sale.
Why Buy Term Invest the Rest Beats Whole Life Insurance?
Besides opting for whole life insurance with lower guaranteed returns (you can use Bowtie’s exclusive BTIR Calculator to check the actual return levels of such policies) , you might consider the “Buy Term, Invest the Rest” strategy. This involves purchasing pure protection term life insurance , paired with short-term savings insurance or other investment products that offer higher guaranteed returns. This way, you get life protection and decent savings returns with lower premium costs.
Bowtie Term Life is a term life product that provides a lump-sum payout to beneficiaries upon the insured’s death. Its features include:
- Pure protection, with no savings component
- Up to 40 times higher coverage than typical savings life products for the same premium*
- Monthly premium as low as $38 per $1 million coverage
- * Based on standard premium for a 35-year-old non-smoking female with $1 million coverage; Term life insurance: Data from market term life products (20-year term) as of July 1, 2020
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