Author
Bowtie Team
Updated on
2025-07-10
Disclaimer: This article is translated with the assistance of AI.
Wondering about the difference between annuity and savings insurance? Bowtie breaks it down with a detailed comparison and guides you through 4 key factors to choose the right product for your needs.
What Is Savings Insurance?
As the name suggests, Savings Insurance is a financial product designed to help policyholders accumulate funds. After paying premiums for a specified period, policyholders can, depending on the policy type, withdraw the principal along with returns either at maturity or at a target age. This can support various life plans such as marriage, children’s education, starting a business, or buying a home. Savings insurance can be categorized into short-term (1-8 years) and long-term (5-25 years) plans based on the coverage period. Short-term savings insurance typically offers guaranteed returns with relatively low risk, while long-term savings insurance often provides guaranteed returns alongside non-guaranteed bonuses.
What Is an Annuity?
Annuity is actually a type of savings insurance, but it’s specifically designed as a financial tool for retirement planning. Annuity policyholders can generally choose to pay premiums in installments or as a lump sum. Depending on the annuity product, policyholders may start receiving income immediately or at a specified age. Annuities aim to provide a steady cash flow or “long-term income” for policyholders after retirement. Some products also allow a lump-sum withdrawal. Like savings insurance, annuity products typically offer guaranteed returns along with a non-guaranteed portion.
Annuities can be classified based on withdrawal timing (immediate vs. deferred annuity) , income duration (fixed-term vs. lifetime annuity) , and tax deduction benefits (Qualifying Deferred Annuity vs. Public Annuity) .
Take the popular Qualifying Deferred Annuity Policy (QDAP) with tax-deductible premiums as an example. The statutory contribution period is at least 5 years, the annuity payout period is at least 10 years, and the policyholder must be at least 50 years old when receiving the annuity.
Annuity vs Savings Insurance: Key Differences
Having briefly introduced savings insurance and annuities as financial tools, you might still be unclear about their differences. Let Bowtie break it down for you with a detailed comparison of the popular Qualified Deferred Annuity Plan (QDAP) and general savings insurance in the market:
| Product | Qualified Deferred Annuity Plan (QDAP) | Savings Insurance |
| Objective | Provides steady cash income for retirees/
Lump-sum retirement payout |
Accumulates funds for policyholders
To achieve various life goals |
| Life Protection | Includes death benefit, but not the primary focus | Includes death benefit, but not the primary focus |
| Currency Options | Mainly in HKD/USD/CNY | Mainly in HKD/USD/CNY |
| Entry Threshold | Statutory minimum entry fee of HK$180,000 | Typically has minimum and maximum total premium limits, with entry fees starting from a few thousand HKD |
| Premium Payment Term | Medium-term
Payment period ranges from 5 to 10 years |
Medium to long-term
Payment period ranges from 1 to 25 years |
| Payment Mode | Options for monthly/quarterly/half-yearly/annual payments | Options for lump-sum/monthly/quarterly/half-yearly/annual payments |
| Returns | Offers guaranteed and non-guaranteed returns | Generally provides guaranteed returns
Some participating policies offer both guaranteed and non-guaranteed returns |
| Tax Benefits | Eligible for tax deductions | Premiums are not tax-deductible |
| Limitations | Early surrender may result in losses | Early surrender may result in losses |
Annuity vs Savings Insurance: How to Choose the One?
Struggling to decide between an annuity and savings insurance? Which one suits you best? Bowtie suggests considering the following factors to make an informed choice:
Savings Goals
Your choice depends on your savings goals. Annuities are designed for retirement planning, with stricter rules on contributions and withdrawals. For instance, with a QDAP (Qualifying Deferred Annuity Policy), the mandatory contribution period is 5-10 years, and annuity payouts only start when the policyholder turns 50, lasting at least 10 years. On the other hand, savings insurance offers more flexibility, especially with short-term savings insurance , where policy terms can be as short as 1-3 years, making it ideal for those with short-term savings targets.
Tax Deduction Benefits
Most savings insurance plans in the market don’t offer tax benefits, but QDAP premiums are eligible for tax deductions . The maximum annual deduction for QDAP premiums is HK$60,000. Based on Hong Kong’s highest salary tax rate of 17%, this could save you up to HK$10,200 in taxes each year. Over a 10-year contribution period, you could save over HK$100,000 in taxes. No wonder QDAP is a popular choice among high-income individuals!
Return Levels
Medium to long-term savings insurance and annuity products typically offer returns composed of both “guaranteed returns” and “non-guaranteed returns” (also known as “expected returns”). Policyholders can refer to the Internal Rate of Return (IRR) figures provided by the product and review the insurer’s track record in delivering non-guaranteed returns . For QDAP products, since they come with tax benefits, be sure to check the post-tax IRR when comparing returns.
If you’re only after guaranteed returns, consider short-term savings insurance or bank fixed deposits .
Financial Flexibility
Once a savings insurance contract is in place, early surrender often results in financial loss. Keep in mind that the “break-even period” for medium to long-term savings insurance can be over 10 years. Similarly, annuity products like QDAP have specific contribution and payout periods. Cashing out early through policy surrender could lead to significant losses for the policyholder.
If you need high financial flexibility, think twice before committing to these products.
Why “Buy Term, Invest the Rest” Offers Better Protection Than Whole Life Insurance?
Instead of opting for whole life insurance with lower guaranteed returns (you can use Bowtie’s exclusive BTIR Calculator to understand the actual return level of such policies) , consider adopting the “Buy Term, Invest the Rest” strategy. This means purchasing pure protection via Term Life Insurance and pairing it with short-term savings insurance or other investment products with higher guaranteed returns. This way, you can enjoy life protection and decent savings returns at a lower premium cost.
Bowtie Term Life is a term life product that provides a lump-sum payout to beneficiaries upon the insured’s passing. Its key features include:
- Pure protection with no savings component
- Coverage amount up to 40 times higher than typical savings life products at the same premium*
- Monthly premium as low as HK$38 per HK$1 million coverage
- * Based on standard premium for a 35-year-old non-smoking female with HK$1 million coverage; Term Life Insurance: Data reflects standard premiums for term life products (20-year coverage period) as of July 1, 2020.
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