Is Medical Savings Insurance Worth It?

Medical savings insurance is an insurance product that combines savings functions and medical coverage. This type of policy is essentially a savings-type life insurance plus a “medical account,” but such products are relatively rare in Hong Kong now.

Using savings-type life insurance policies, customers of this product can accumulate cash value through fixed premium payments over a specific period, with overall returns consisting of guaranteed and non-guaranteed returns. While providing life coverage, the policy also includes a “medical account” that offers certain medical protections, including hospitalization compensation, surgical compensation, post-hospitalization and post-surgery compensation, accident compensation, and hospitalization cash compensation.

Medical savings insurance shares similarities with consumption-type medical insurance. Both premiums are placed into a fund pool. If someone meets the claim conditions, the insurance company will disburse funds from the pool for compensation.

The key difference is that in medical savings insurance, part of the premium is used for investment to accumulate cash value, so premiums are generally several times higher than those for consumption-type insurance; whereas consumption-type medical insurance typically has no cash value.

Returns from medical savings insurance are divided into guaranteed and non-guaranteed types. Guaranteed returns are those that the customers will definitely receive, while non-guaranteed returns are often based on estimates and may not be obtained, especially if the investment market declines, or if interest rates and bond yields fall, which could negatively impact potential returns. Additionally, the insurance company’s operating expenses and insurance risks may affect potential returns, for example, if the company pays out high claims, potential returns could be reduced.

Insurance companies typically invest funds in lower-risk assets, such as bonds, to generate returns, allowing the accumulated assets to grow over time, with the cash value increasing accordingly.

Of course, you can withdraw the cash value at any time, but note that if the policy’s contribution period has ended and you withdraw the full cash value, the insurance company may consider this as “surrender,” meaning you could lose your medical coverage.

Alternatively, you can apply for a policy loan to access part of the cash value for short-term needs. However, since policy loan interest rates are quite high and often exceed potential returns, it’s not recommended unless necessary.

Some might feel “a loss” for paying premiums without needing to claim due to not getting sick. In fact, this is a misconception. Compensating for this “loss” by paying more expensive premiums for saving insurance could cost you even more money in sum.

Secondly, medical savings insurance typically has fixed premiums per period, which do not increase with age. This payment model is known as “level premiums,” allowing customers to budget more effectively. However, “level premiums” are not necessarily better. You may compare the average total Premiums under both pricing models, as well as the differences in premiums over various periods, then choose the one that suits you.

A major selling point of savings-type policies is that they have a specific contribution period; after it ends, you don’t need to pay premiums lifelong while still enjoying coverage, and the cash value continues to accumulate interest and grow. In essence, the reason you don’t pay lifelong premiums is that the dividends from the cash value exceed the required premiums, so the insurer uses dividends to offset future premiums.

Customers might exchange higher premiums for coverage and returns that they don’t have to manage themselves, allowing insurance companies or intermediaries to earn substantial returns! Since medical savings insurance premiums are higher, insurance intermediaries naturally receive higher commissions, which is why agents and brokers have often promoted these saving products in the past.

Most medical insurance plans are consumption-based, but to meet diverse market needs, many insurance companies and banks have previously offered medical savings insurance.

However, because medical savings insurance premiums are much higher than those of consumption-based medical insurance, such as VHIS which offers tax deduction advantages, medical savings insurance faces serious competition.

It’s worth noting that VHIS not only provides tax benefits but also differs from typical savings-type and traditional consumption-based medical insurance in terms of coverage. It recalculates the sum assured annually, offers multiple claims, and has no waiting period for the same illness, check out Bowtie VHIS for more .

However, if you insist on “getting back” the premiums you’ve paid by purchasing medical savings insurance, keep these points in mind:

• Prioritise coverage; if the scope and sum assured are insufficient, don’t buy it;
• Don’t be swayed by expected cash value highs; focus more on the guaranteed cash value;
• Be prepared to pay for the full term; early surrender (e.g., within 5 years) will only yield a very low cash value. Therefore, before purchasing, assess whether you can afford the premiums.

• Medical insurance: on an actual reimbursement basis , providing compensation for eligible medical expenses
• Critical illness insurance: in the event the insured unfortunately suffers from a specified serious illness, it provides compensation on a lump sum basis to cover the insured’s living expenses during the period of absence from work due to illness, allowing the insured to focus on treatment and recovery

Therefore, if you unfortunately suffer from a critical illness, having only medical insurance can cover your medical expenses but may not address the long-term issues you face due to the illness. In fact, when you are diagnosed with a critical illness, even if it is not life-threatening, it often forces you to stop working and lose income, which can affect your quality of life and disrupt your existing plans.

Since medical insurance and critical illness insurance provide non-overlapping coverage, a reliable critical illness insurance can replace the income you lose while out of work, providing financial support and reducing the impact on your family, thereby maintaining your original quality of life.

Critical illness insurance is absolutely an essential form of protection. Beyond medical insurance, the importance of critical illness insurance cannot be overlooked. In any situation, as long as you have a stable income, you should actively consider purchasing a critical illness policy to give yourself an extra layer of protection.

When choosing between consumptive and savings-type medical insurance, the Bowtie team recommends opting for consumptive medical insurance because protection is the most important aspect of medical insurance, not savings.

If you hope to earn returns, you might consider the “Buy Term, Invest the Rest” strategy, which involves purchasing pure protection term life insurance (along with VHIS  for medical coverage), combined with short-term savings insurance or other investment products that offer higher guaranteed returns. This way, you can achieve life and medical protection with lower premiums while enjoying substantial savings returns.