Author
Bowtie Team
Updated on
2025-06-03
Disclaimer: This article is translated with the assistance of AI.
What exactly is savings insurance—and can you trust its “non-guaranteed” returns? Senior financial planner Lam Ching-wung cuts through the marketing spin, analyzes whether insurers exaggerate projected yields, and reveals whether downturns are actually the best time to buy.
COVID-19 pandemic caused significant volatility in global financial markets, with stock markets experiencing the most severe fluctuations since the 2008 financial crisis. The Dow Jones once plummeted 2,997 points in a single day, marking the largest single-day point drop in history. The Hang Seng Index also fell from its January high by nearly 8,000 points.
This led to widespread panic in the markets. Governments worldwide introduced unprecedented rescue packages to save the economy and maintain financial market stability. The Federal Reserve cut interest rates by 1.5% in less than two weeks, bringing the federal funds rate to 0 to 0.25%. Both the US and Europe implemented unlimited QE (quantitative easing), ushering in an ultra-low interest rate environment expected to persist for an extended period.
For aggressive investors, this might be a good opportunity to buy quality assets at low prices. However, for those unwilling to take on risk in an environment where bank interest rates are near zero, what options exist for wealth growth? Savings insurance could be a viable choice.
What is Savings Insurance?
As the name suggests, savings insurance is insurance with a savings component, generally offering little to no life protection coverage. (Since most people purchase savings insurance primarily for wealth accumulation or other goals like retirement, this article will not discuss life insurance as the main coverage , even if it has a savings element).
Buying savings insurance means entrusting the task of wealth accumulation to the insurance company. You don’t need to monitor investment markets or review financial statements, and you won’t have to deal with issues like tenant management as with property rental. Instead, your assets can grow through compound interest over time without the dramatic ups and downs of stocks (though the potential returns may not match long-term stock holdings). This makes it ideal for those who prefer to avoid risk or are too busy to manage their own assets.
In the medium to long term, savings insurance provides stable compound returns, but most plans do not offer ideal returns in the short term. Therefore, it is better suited for medium- to long-term financial goals, such as education funds for children, retirement savings, or wealth transfer.
Of course, with any investment, starting earlier allows assets more time to grow through compound interest, and savings insurance is no exception. Investors should choose products based on their risk tolerance and expected returns.
What Options Exist for Plan Duration and Contribution Period?
Typically, the shortest contribution period is 5 years, with the longest extending to 20 years or more (some plans allow as short as 2 years or a one-time payment, though these are not mainstream and usually require a higher minimum contribution). Plan durations can vary depending on savings goals, generally ranging from as short as 5 years to lifelong coverage.
Most savings insurance plans do not offer a “premium holiday,” meaning policyholders cannot pause contributions during the contribution period . Even if some plans include a premium holiday option, it is not recommended to use it casually, as it could significantly impact returns. If your insurance agent suggests paying premiums for a period and then applying for a premium holiday to let the plan continue accruing, such as with a 20-year contribution plan where you stop after 10 years, they are likely prioritizing their commission over your interests. Why not just choose a 10-year contribution plan instead?
What are the Impacts of Lapsing Payments?
If you lapse on payments for savings insurance, it depends on whether the policy’s cash value is sufficient to keep the plan active. In the worst case, the policy could lapse, resulting in a surrender value much lower than the total premiums paid. Before starting a plan, you should clearly understand your financial goals and select an appropriate one based on your financial situation and cash flow. Consider consulting a qualified and experienced financial planner if needed!
Differences Between Guaranteed Cash Value and Non-Guaranteed Bonuses
Before launching a product, insurance companies typically inject a sum of money to establish a reserve, known in the industry as a “pool of funds” (Pool). They then use this money for investments to gain certain investment returns. Most commonly, they purchase long-term government bonds and may also invest part in high-dividend blue-chip stocks or real estate for rental income.
Insurance companies prioritize long-term investment income, such as bond interest, stock dividends, or rental income, over short-term capital gains. Therefore, when a product is launched, a portion of the returns can basically be predicted as certain, allowing insurance companies to offer guaranteed returns, generally known as the policy’s cash value.
Of course, there are other uncontrollable factors, such as fluctuations in stock prices and whether stock dividends are stable. Additionally, certain participating insurance policies have other factors affecting non-guaranteed returns, including the insurance company’s profits and claims experience. Insurance companies have professional actuarial teams that use past experience and data, along with some assumptions, to project future scenarios and provide non-guaranteed returns based on these assumptions.
These non-guaranteed bonuses can usually be withdrawn by clients at any time (this generally refers to American-style policies, excluding British-style policies calculated with reversionary bonuses). If clients do not need to use this money temporarily and choose to leave it in the policy, the insurance company will pay additional non-guaranteed interest, which is generally higher than bank deposit rates. At the time of writing, the common annual interest rate for rolling USD policy bonuses in the market is 4%. Of course, insurance companies can adjust the interest rate at any time based on their financial situation and market interest levels.
Will Insurance Companies Exaggerate On Non-Guaranteed Returns?
Some insurance companies might set high non-guaranteed returns to attract clients, and there have been cases in the past where companies could not fulfill the non-guaranteed returns stated in proposals.
In light of this, the Insurance Authority requires that from January 1, 2017, insurance companies must regularly publish their past dividend fulfillment ratios (Fulfilment ratio), allowing consumers to judge whether the company’s assumptions are reasonable and reliable based on historical data. Therefore, if you see that certain insurance companies’ fulfillment ratios fluctuate significantly or are always below 100%, you should be cautious, as this may indicate that the company’s assumptions are too aggressive.
That said, quality insurance companies will make reasonable assumptions and strive to achieve non-guaranteed returns, as it is the only way to win long-term trust in clients. In fact, many insurance companies can consistently provide fulfillment ratios close to or even above 100%.
Should You Buy Savings Insurance Under a Poor Market Condition?
A poor market condition usually means that stock prices have fallen significantly, which might be an opportunity for long-term investors to buy quality assets. As Warren Buffett said: “Be fearful when others are greedy, and greedy when others are fearful.”
The key is that we should not be led by short-term market conditions. Especially when the short-term atmosphere is very pessimistic (or very optimistic), as it’s usually hard to make the right judgment.
Wealth management is inherently a long-term task and should be viewed from a medium to long-term perspective. What we should consider is how to allocate assets to match our financial goals. Aggressive investors can tolerate high risks for high potential returns; conservative investors should allocate more to low-volatility instruments.
Last piece of advice, you should consult a professional financial planner when needed!
Related Articles
Other Topics
Blood HealthBowtie StoryBusinessCancerChinese MedicineCovidCustomer ReviewDeathcareDental HealthDigestive HealthDoctor SpecialistsDrugsEar, nose, and throatEndocrinology & DiabetesExercisingEye HealthFinanceFood & NutritionGroup Medical InsuranceHealthHealth GlossaryHeart HealthHospitalsHot TopicsImmigrationKidney HealthKids HealthlearnLiver DiseaseLung & RespiratoryMedical Check UpsMen’s HealthMental HealthNervous SystemOrthopedicsOutpatient ServicesParentingPhysiotherapyPress ReleasePrevention/VaccinationProduct PhilosophyRealtyRheumatic DiseaseSeniors HealthSkin IssueSymptomsTreatment PlanUrologyWomen’s Health女性健康