Author
Bowtie Team
Updated on
2025-05-28
Disclaimer: This article is translated with the assistance of AI.
Life insurance plays a crucial role in financial planning, especially before retirement. A reverse mortgage allows you to convert your life insurance death benefits into cash flow, offering flexibility in how you use those funds. What exactly is the purpose of a reverse mortgage? Let’s dive deeper into how it works and why it might be the right option for you.
What is a Policy Reverse Mortgage?
Policy reverse mortgage is a loan arrangement operated by the Hong Kong Mortgage Corporation Limited’s wholly-owned subsidiary, the Hong Kong Mortgage Corporation Insurance Limited (HKMC Insurance Company). It allows eligible individuals to pledge their life insurance policies to banks or other lending institutions and receive a fixed monthly annuity for retirement. In times of need, you can also apply for a lump-sum loan to handle special situations. Generally, no repayment is required for life until death.
How Does Policy Reverse Mortgage Work?
Policy reverse mortgage uses the death benefit of a life insurance policy as collateral to obtain a loan, providing a monthly annuity for retirement. The loan includes the monthly annuity payments, any lump-sum loan (if applicable), and interest calculated on a compound basis. When the plan is terminated (most commonly upon the applicant’s death), the death benefit from the policy is used to repay the loan in full.
If there is any remaining balance after deducting the loan from the death benefit, the applicant (or their estate beneficiaries) can receive it. However, if the death benefit is insufficient to cover the loan, the applicant (or their estate beneficiaries) does not need to repay the difference, as it will be covered by HKMC Insurance Company under their insurance arrangement with the lending institution.
Applicants can flexibly choose different annuity periods based on their needs, including 10 years, 15 years, 20 years, or a lifetime annuity . You can also opt for a fixed-rate or floating-rate plan. Generally, the fixed-rate plan offers a higher monthly annuity and maximum lump-sum loan amount compared to the floating-rate plan .
How Much Annuity Can You Receive Monthly Under Policy Reverse Mortgage?
The amount of monthly annuity you can receive depends on factors such as the applicant’s age, gender, annuity period, and the specific life insurance policy. Generally, the older the applicant is at the time of application and the shorter the chosen annuity period, the higher the monthly annuity amount. Below is an example for reference (Table 1).
| Monthly Annuity Amount (HKD) Example | ||||
| Borrower’s Age | 65 | |||
| Borrower’s Gender | Male | |||
| Life Insurance Policy Death Benefit (HKD) | 2,000,000 | |||
| Monthly Annuity (HKD)* | ||||
| Annuity Period | 10 years | 15 years | 20 years | Lifetime |
| Floating-rate Plan | $5,088 | $3,986 | $3,516 | $3,234 |
| Fixed-rate Plan | $5,750 | $4,426 | $3,852 | $3,498 |
Table 1: Monthly Annuit Example (Source: Hong Kong Mortgage Corporation Limited)
- * The above monthly annuity amount is determined based on a specific life insurance policy from a well-known insurance company and is for illustrative purposes only. The actual annuity amount will vary depending on the individual life insurance policy.
- * The above monthly annuity amount for the floating-rate mortgage plan is calculated based on the interest rate as of July 31, 2023 (i.e., Hong Kong prime rate minus 2.5%). The floating interest rate and Hong Kong prime rate are determined from time to time by the Hong Kong Mortgage Corporation and the Mortgage Insurance Company, respectively.
- * The above monthly annuity amount for the fixed-rate mortgage plan is calculated based on the first 25 years at an annual interest rate of 4% and subsequent periods at Hong Kong prime rate minus 2.5%. The fixed interest rate and Hong Kong prime rate are determined from time to time by the Hong Kong Mortgage Corporation and the Mortgage Insurance Company, respectively.
Applicants can also apply for a lump-sum loan to cover various purposes , such as improving, repairing, and maintaining their residential properties in Hong Kong, paying for medical expenses, purchasing columbarium niches, graves, or funeral services. They can also apply for a lump-sum loan when applying for a policy reverse mortgage to pay off the premiums of life insurance policies or fully repay the policy loans of life insurance.
Get Medical Protection After Retirement
Although the above methods can “increase income,” if you don’t “cut expenses,” when sudden accidents require checks or treatment, it may cost you part of the retirement fund or even wipe out your savings!
For Colorectal cancer and Breast cancer , for example, the costs of related surgeries at Hong Kong Adventist Hospital are as follows:
| Treatment Item | Cost |
| Breast Tumor Excision +/- Frozen Section – Unilateral | $70,360 – $91,480 (depending on risk) |
| Laparoscopic Hemicolectomy | $184,060 – $239,320 (depending on risk) |
Medical treatments can quickly add up, often reaching hundreds of thousands of dollars. Without proper planning, these unexpected expenses could disrupt your carefully crafted retirement plan. One effective way to safeguard your financial future is by purchasing medical insurance early. Why is this so important? Let’s break it down step by step:
1. Since you are no longer a full-time employee of the company, you will lose your company medical insurance. If you fall ill and have not purchased other medical insurance, you will have to bear all medical expenses yourself.
2. Purchasing medical insurance when you are in good health makes it easier to pass the Underwriting Process and successfully get insured. On the other hand, if you wait until health issues arise before buying insurance, the insurance company might add Loading (Additional Premium) , or you might even fail the underwriting process altogether.
What Insurance Should You Get?
Considering that retirees do not have company medical insurance or a fixed income, Bowtie recommends purchasing the Bowtie VHIS Flexi (Regular) + Bowtie GHK Wellness Package (Add-on for $200 per month)
1. Full reimbursement for over 240 surgeries/checkups + no deductible
Since most retirees do not have a fixed income, if they need examinations or treatments and have already purchased the Bowtie VHIS Flexi (Regular) + GHK Wellness Package , they won’t have to use their own savings to cover part of the costs.
Moreover, it covers most inpatient medical needs, with full reimbursement for over 240 surgeries/checkups at Gleneagles Hospital ^, such as breast tumor surgery , partial colectomy, various endoscopy examinations , joint replacement surgery, and more, meeting the medical needs of retirees.
2. One free annual health check-up
Bowtie VHIS Flexi (Regular) + GHK Wellness Package include one comprehensive annual health check-up (worth up to $2,720), allowing you to regularly monitor your health status and seek medical attention promptly if needed, speeding up recovery.
- * Full compensation for specified medical packages is subject to the annual policy limit of VHIS Flexi.
Can I Use Policy Reverse Mortgage Annuity Income To Cover Premiums?
If you have applied for a policy reverse mortgage, you can also use the annuity income to pay the premiums. For example, for a 65-year-old non-smoking male subscribing to the Bowtie VHIS Flexi (Regular) + GHK Wellness Package , the monthly premium is $1,290. Assuming this 65-year-old male holds a life insurance policy with a sum assured of $2 million, if he chooses to receive a lifelong annuity, whether opting for the floating or fixed interest plan, he can receive $3,234 – $3,498 monthly, which is more than enough to cover the premiums.
A reverse mortgage isn’t the only solution to fully or partially fund your insurance premiums. With proper planning and calculation, there are several other effective options to consider. Alternatives such as annuities, fixed deposits, income-generating stocks, bonds, or mutual funds can help subsidize your premiums while maintaining financial stability.
FAQs on Policy Reverse Mortgage
1. Who can apply for a policy reverse mortgage plan?
Individuals aged 55 or above with a Hong Kong ID card, who are not currently bankrupt or involved in bankruptcy petitions or debt restructuring, can apply for a policy reverse mortgage plan.
2. What types of policies are eligible for a policy reverse mortgage plan?
The policy must have fully paid premiums, not be used as other collateral, or have restrictions on changing beneficiaries. The policy currency must be HKD or USD, and it should not involve any investment components, such as investment-linked life insurance.
3. What are the fees for a policy reverse mortgage plan?
| Interest expenses | Policy reverse mortgage is a loan arrangement, and the lending institution will calculate interest on the total outstanding amount (including interest) using compound interest. |
| Mortgage premium | The mortgage premium is divided into two parts, which will be paid by the borrower and added to the policy reverse mortgage loan:
(i) Basic mortgage premium: 1% of the specified life insurance policy value, paid in five installments on the 1st, 13th, 25th, 37th, and 49th monthly annuity payment dates, with each installment being 0.2% of the specified life insurance policy value. (ii) Monthly mortgage premium: Calculated at an annual rate of 1% based on the total outstanding amount of the policy reverse mortgage loan, paid monthly. |
| Administrative fees | After the policy reverse mortgage loan takes effect, each successful application to change the annuity period or withdraw a lump sum loan requires a HK$1,000 administrative fee. This fee will be added to the policy reverse mortgage loan. |
| Other fees and expenses | The borrower may need to pay any relevant fees to the insurance company for arranging the life insurance policy transfer (if applicable). |
4. How does a policy reverse mortgage plan differ from other annuity plans?
Table: Differences Between Policy Reverse Mortgage Plan and Other Annuity Plans
| Policy Reverse Mortgage Plan | Hong Kong Annuity Plan | Qualified Deferred Annuity Plan | |
| Operation | Policy reverse mortgage is a loan arrangement that allows the borrower to use the life insurance policy as collateral to obtain a loan from the lending institution. | A one-time premium payment with immediate annuity receipt | Monthly or annual contributions that accumulate over a period, such as 10 years, or until the holder reaches age 50, before annuity payments begin |
| Annuity payment form | Immediate receipt | Immediate receipt | Available after accumulation period |
| Cooling-off period | Within the 6-month cooling-off period, if the policy reverse mortgage plan is terminated and the total outstanding loan is fully repaid by the specified date, the mortgage premium will be fully refunded and waived. However, the borrower must still repay the total outstanding policy reverse mortgage loan, including accrued interest and other added fees. | Premiums paid can be refunded within the cooling-off period as per regulatory requirements (deducting any guaranteed monthly annuity amounts already disbursed) |
Starts after 21 days from the delivery of the policy to the policyholder or their representative, or from the issuance of a notice, whichever is earlier. |
| Tax benefits | No tax benefits | No tax benefits | Premiums are tax-deductible, with a maximum annual deduction of $60,000 per person |
The table can be scrolled horizontally
5. Can a general savings life insurance policy also allow the insured to withdraw cash? How does it differ from policy reverse mortgage?
Not every savings life insurance policy allows partial surrender to withdraw the cash value. Even if it does, the death benefit amount will be reduced by the surrendered value.
In contrast, policy reverse mortgage allows eligible individuals to pledge their life insurance policy to a bank or lending institution, receiving a fixed monthly annuity for retirement. Generally, no repayment is required during the borrower’s lifetime.
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