Author Bowtie Team
Updated on 2025-06-11
Disclaimer: This article is translated with the assistance of AI.
Savings and wealth building don’t stop for seasons, but with so many insurance options out there, it’s easy to get overwhelmed. Discover how some all-in-one plans can help you strike two matches with 1 flick, like retirement savings, life protection, or funding your kids’ education!
Different products have different contribution periods, coverage, and surrender fees. Without someone to explain the product details for you, it’s tough to dive into all those fine-print terms and conditions yourself. The Bowtie information team has pulled together insights from senior actuaries on savings insurance products to help you get a deeper understanding of their categories and how returns are calculated.
| Non-guaranteed returns | Guaranteed returns |
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Savings insurance can generally be divided into two main categories: investment-oriented and protection-oriented . Protection-oriented savings products include life insurance and critical illness insurance, focusing on coverage for serious illnesses or accidents leading to death. On the other hand, investment-oriented savings products are more complex, involving premium composition, income forms, and return calculations. They can broadly be categorized into the following four types:
1. Savings Life Insurance
Suitable for Those Seeking Stable Returns in the Short Term
Savings life insurance is one of the most stable and conservative choices in savings plans. Its key features include guaranteed cash value (the amount you can get back if you surrender the policy), maturity benefit (the amount you receive when the policy term ends), and death benefit (the amount the insurance company pays out if the insured passes away). This type of insurance is similar to a fixed deposit, using time to build up guaranteed cash so you can earn the maturity benefit at the end of the policy term. The coverage period is generally under 15 years, with premiums paid in a lump sum or in two to three installments. These plans usually don’t involve non-guaranteed bonuses, making them ideal for folks looking to earn stable returns in the short term .
| Product type | (* Example) Short-term savings life insurance |
| Policy contribution period | 2 years |
| Premium payment method | One-time payment / annual / monthly |
| Coverage period | 3 years |
| Key features | Provides a guaranteed maturity benefit amount at the time of purchase |
| Maturity benefit | Approximately 108% of the total premiums paid |
| Coverage provided | Life and accidental death coverage |
| Death benefit amount = | 101% of total premiums paid — any unpaid premiums |
Benefits of Savings Life Insurance
- Helps build a saving habit: With fixed premiums and contribution periods, it encourages policyholders to regularly set aside money, fostering disciplined saving.
- Offers guaranteed returns: At the end of the policy term, you can receive the maturity benefit and withdraw the cash value in the policy (depending on the actual policy details).
- Includes death benefit coverage: If the policyholder unfortunately passes away, the insurance company will pay out the death benefit.
Drawbacks of Savings Life Insurance
- Early withdrawal might lead to losses: There’s a set contribution period, so if you surrender early, the internal rate of return could turn negative, and the insurer might charge fees.
- Some returns are non-guaranteed: Not all savings life insurance offers bonuses, and even if it does, those bonuses aren’t guaranteed, so you might end up with nothing extra.
- Limited flexibility in fund adjustments: If it’s not a single-payment plan, you generally can’t change your premium amount during the contribution period, which could lead to cash flow issues and less adaptability to your personal situation.
2. Life Insurance Plans with Guaranteed Income
Suitable for those wanting to earn liquid income in the short term or save for future retirement
Life insurance plans with guaranteed income are popular savings or retirement plans . Their key feature is that, after the policy period begins, they regularly distribute what’s commonly known as ‘coupons’— guaranteed cash reserves with interest . These plans typically have premium payment periods ranging from 5 years or more, with coverage lasting 30 years or even a lifetime. Once the income period starts, the policyholder can begin earning these interest-bearing ‘coupons’ annually as extra personal income. Any distributed but unwithdrawn ‘coupons’ will remain in an interest-bearing account to accumulate dividends. This type of life insurance is ideal for: 1) Individuals looking to generate liquid income in the short term , such as saving for starting a family or funding children’s education; or 2) Those starting to save for future retirement to ensure a steady and reliable income stream after retiring.
| Product Type | (Example) Whole Life Insurance Plan |
| Policy Payment Period | 5 years / 10 years |
| Premium Payment Form | Lump sum / 3 years / 5 years |
| Coverage Period | Lifetime (up to age 100) |
| Features |
|
| Maturity Benefits | Terminal dividend (if any) + Amount in the accumulated interest-bearing account (if any) – Any outstanding loans and interest (if any) |
| Coverage Provided | Life and accidental death coverage |
| Death Benefit Amount | 105% of total premiums paid – Total amount of distributed ‘coupons’ + Amount in the accumulated interest-bearing account (if any) – Any outstanding loans and interest |
Benefits of Life Insurance Plans with Guaranteed Income
- Fixed premiums: Once set at the time of purchase, the premiums for this life insurance won’t change due to aging or health changes, and you won’t need to renew or undergo re-underwriting.
- Great for those not savvy with investments: Whole life insurance combines investment and life coverage elements, with the insurance company handling the investments for you.
- Includes death benefit coverage: If the policyholder unfortunately passes away, the insurance company will provide a death benefit payout.
Drawbacks of Life Insurance Plans with Guaranteed Income
- Premiums can be pricey: For whole life insurance, you’ll need to make regular payments over a longer period, making it more expensive than term life insurance. Plus, under the same premium budget, the coverage is often lower than with term life policies.
- Early surrender might not break even: If you need to cash out early, the cash value you get could be much lower than what you’ve paid in premiums, leaving you with less flexibility and potential losses.
- Returns might not live up to expectations: Many folks online share that the projected returns for whole life insurance often fall short of reality, with non-guaranteed payouts lacking transparency—and you might end up just breaking even with your principal.
3. Annuity Plan
Suitable for Individuals Saving for Future Retirement
Annuity Plan is a tool used for retirement savings , converting the policyholder’s accumulated savings before retirement into regular income after retirement . There are various types of annuities available on the market, and the qualifying deferred annuity is one of them, recognized by the Insurance Authority . A deferred annuity includes two stages: accumulation period and annuity payout period . During the specific accumulation period, the policyholder pays premiums regularly, and the payment period is usually separated from the annuity payout period, allowing the insurance company to grow the amount through investments. Upon reaching the annuity payout period, the policyholder can receive annuities regularly during that period. Any non-guaranteed annuity income that has been declared but not withdrawn will be retained in the interest-bearing account as accumulated dividends. This annuity plan is similar to a ‘coupon-style’ plan for regular cash withdrawals from reserves, making it suitable for those who want to prepare for their retirement life .
| Product Type | (*Example) Deferred Annuity Plan |
| Policy Contribution Period | 5 years / 10 years |
| Premium Payment Form | Annually / Every six months / Quarterly / Monthly |
| Coverage Period | Until lifetime |
| Features |
1) Guaranteed annuity income — Fixed income distributed regularly throughout the entire annuity income period 2) Non-guaranteed annuity income — Non-guaranteed dividends distributed from the end of the accumulation period to the start of the last policy year |
| Maturity Benefits | Terminal dividend (if any) + Guaranteed annuity income in the accumulated interest-bearing account plus interest and dividends plus interest (if any) — Any outstanding loans and interest (if any) |
| Coverage Provided | Life and accidental death coverage |
| Death Compensation Amount |
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- * Based on products available in the market, for reference only
Benefits of Annuity Plans
- Provides a stable income for retirees: Through regular cash distributions, it offers a steady income stream, helping to prevent retirement funds from running out due to longevity and securing the policyholder’s retirement in later years.
- Eligible for tax deductions: If the policy is certified by the Insurance Authority as a qualifying deferred annuity, you can enjoy tax benefits. For the 23/24 tax year, for example, taxpayers can get up to HK$60,000 in tax deductions.
- Includes death compensation coverage: If the policyholder unfortunately passes away during the ‘annuity contribution period’ or ‘annuity income period’, the beneficiary can receive compensation in different ways under the plan. (This does not apply to the insured who passes away after the ‘annuity income period’ or ‘guaranteed period’ ends)
Drawbacks of Annuity Plans
- Lacks flexibility in fund usage: If you need to withdraw the principal early for emergencies, you may face early redemption fees, resulting in losses.
- Relatively low returns: Annuities are conservative income tools; while returns are stable, the rates are generally low and may not keep up with inflation.
4. Universal Life Insurance
Suitable for Individuals with Long-Term Savings Goals and High Net Worth
Universal life insurance is a highly flexible life insurance product with two key features: First, it offers high account transparency. Policyholders can check their premium account balance anytime, adjust the coverage amount, premium payments, and even withdraw cash. You can make changes to the coverage amount or premium payments on specific dates set by the insurer (like after the premium payment period ends or on policy anniversaries). If you need liquid funds, you can withdraw from the account, but keep in mind that withdrawals might affect surrender charges and the death benefit amount. Second, it comes with low guaranteed interest rates and high non-guaranteed interest rates. Similar to participating life insurance, the insurer invests your premiums into designated asset portfolios and may distribute non-guaranteed interest rates as high as 9% in certain years, while the guaranteed rate is typically under 2.5%. This mix of life insurance, savings, and investment makes it ideal for long-term savings goals , especially for those focused on investments, family objectives , and individuals with high net worth .
| Product Type | (Example) Universal Life Insurance |
| Policy Contribution Period | Flexible Contributions |
| Premium Payment Form | One-time prepayment / 2 years / 5 years |
| Coverage Period | Lifetime (100 years) |
| Features |
|
| Maturity Benefits | Policy account value + accumulated dividends and interest in the account (if any) – any outstanding loans and interest (if any) |
| Provides Coverage | Life and Accidental Death Coverage |
| Death Compensation Amount | Total premiums paid – Policy account value or the policy sum assured, whichever is higher |
Benefits of Universal Life Insurance
- High flexibility: Policyholders can make flexible payments and adjust coverage amounts, premiums, and cash withdrawals as needed.
- Risk diversification: The insurer invests premiums in tools like stocks and bonds to aim for solid returns while keeping risks in check.
- Estate planning: You can direct your assets and the insurance proceeds to beneficiaries exactly as you wish, skipping the hassle of probate and getting it straight to them.
- Includes death benefit protection: If the unthinkable happens, the insurer will pay out the death benefit to your loved ones.
Drawbacks of Universal Life Insurance
- Higher costs: It includes various fees like management and administrative charges, making it pricier than term life insurance.
- Lower guaranteed interest rates: With low guaranteed rates and higher non-guaranteed ones, you might end up with less interest than expected if the non-guaranteed rates dip or aren’t paid.
- Investment risk: Even though the insurer spreads investments around, their strategy and performance could impact your returns, potentially leaving your policy value below your initial investment.
Calculating Returns with Internal Rate of Return (IRR)
Internal Rate of Return (IRR) accurately calculates the time value, investment duration, and return amounts. IRR includes Guaranteed Internal Rate of Return and Expected Internal Rate of Return . The Guaranteed Internal Rate of Return is calculated from guaranteed returns ; while the Expected Internal Rate of Return is calculated from guaranteed plus non-guaranteed returns . Since the non-guaranteed Expected Internal Rate of Return is often higher than the Guaranteed Internal Rate of Return, insurance companies typically focus on promoting the more attractive Expected Internal Rate of Return. So, before deciding on a savings insurance product, policyholders should calculate the 10-year, 20-year, and 30-year Internal Rate of Return based on different contribution periods, and separate guaranteed and expected returns for a fuller picture of the returns.
Expected Internal Rate of Return
Total Cash Value (total returns) includes guaranteed cash, non-guaranteed dividends, accrued interest, and more, but whether the insurance company can deliver on this depends on various unstable factors, such as investment risks and credit risks.
Guaranteed Internal Rate of Return
Guaranteed returns are based on guaranteed cash and are amounts that the insurance company is obligated to pay. Bound by the policy contract, regardless of market conditions, the insurance company must provide the guaranteed returns to the policyholder.
| * (Example) 20-Year Whole Life Insurance Plan | ||
| Policy Contribution Period | Expected Internal Rate of Return | Guaranteed Internal Rate of Return |
| 10 years | 1.4% | -1.4% |
| 20 years | 4.2% | 1.0% |
| 30 years | 4.9% | 1.1% |
Bowtie’s information team has gathered data from a market 20-year whole life insurance plan. As you can see from the table above, when calculated over a 30-year contribution period, the Expected Internal Rate of Return can reach up to 4.9%, but the Guaranteed Internal Rate of Return is as low as 1.1% . And for a 10-year contribution period, the Guaranteed Internal Rate of Return drops even lower to a negative figure (-1.4%) . Sure, a high Expected Internal Rate of Return sounds tempting, but remember, it’s an unstable return and not a reliable indicator. That’s why policyholders should calculate both expected and guaranteed Internal Rates of Return themselves to get a clearer view of the real returns.
Various investment websites offer online Internal Rate of Return calculators, and policyholders can also use software like Excel to do the calculations. If you’re looking for a simple way to initially assess a one-time payment and settlement savings plan, here’s the basic formula for calculating its Internal Rate of Return:
| Example: A one-time premium payment of $10,000, which can be withdrawn as $12,000 after 15 years. |
| Internal Rate of Return (IRR) = 1.22% |
- * Example is for reference only; actual situations should be evaluated based on individual circumstances
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