Understanding Terminal and Special Dividends
10Life Research: Only 38% of Dividend Realization Rates Reach 100% or More
Insurance comparison platform 10Life published Study , which analyzed the dividend realization rates of 19 insurance companies and found that only 38% of the rates met the standard1.10Life also discovered that some insurance companies have a wide gap in their dividend realization rate data, with the lowest at 8%, indicating instability.
How Do Savings Insurance Participating Policies Work?
Participating policies are commonly found in insurance with a savings component, such as whole life insurance or whole life critical illness insurance. Insurance companies distribute non-guaranteed benefits (dividends) to policyholders of participating policies. The amount of dividends distributed is determined based on factors like investment strategies and performance, claims experience, and operating expenses. The dividends you ultimately receive may be higher or lower than the expected investment returns outlined in the benefit illustration document. In extreme cases, non-guaranteed dividends could be zero.
The proportion of guaranteed and non-guaranteed benefits in participating policies varies. The higher the dividend proportion, the generally higher the potential returns, but with greater return volatility. When reading the Benefit Illustration, pay attention to both guaranteed and non-guaranteed amounts, rather than just the total accumulated value.
What Are the Common Types of Dividends? Are They All Non-Guaranteed?
There are three common types of dividends, all of which are non-guaranteed, with the following characteristics:
- Annual Dividend : Distributed annually in cash form. Policyholders can choose to withdraw the dividends or leave them to accumulate with interest (non-guaranteed) according to the policy terms.
- Reversionary Bonus : Paid upon the insured’s death. In the case of surrender, its cash value is paid to the policyholder at the discounted value.
- Terminal Dividend : Paid in a lump sum upon death, surrender, or policy maturity. The amount announced by the insurance company may be adjusted each time, with the actual amount determined at the time of payment.
- *Actual distribution methods are subject to the policy terms.
How Is Dividend Realization Rate / Participating Realization Rate / Fulfillment Ratio Calculated?
Insurance companies must disclose the “dividend realization rate” (also known as bonus realization rate or fulfillment ratio) for participating products issued from 2010 onwards and within the last 5 years, allowing consumers to understand the company’s past performance in distributing dividends. The calculation method is as follows:
(Actual distributed non-guaranteed dividends / Non-guaranteed dividends shown in the benefit illustration at the time of sale) X 100%
Dividend realization rate / bonus realization rate / fulfillment ratio calculation example:
| Example | Total dividends projected in the benefit illustration at the time of sale | Total actual dividends distributed | Dividend realization rate |
| 1 | $100 | $100 | 100% |
| 2 | $100 | $50 | 50% |
| 3 | $100 | $30 | 30% |
The dividend realization rate / bonus realization rate / fulfillment ratio is calculated as the average figure for each policy year for the relevant policies. The actual dividend realization rate for individual policies may differ from the rate listed by the insurance company.
The dividend realization rate fluctuates over time, so consumers should not focus solely on a single year’s rate. Instead, review the ratios for all policy years to understand the overall historical performance of the participating policy.
Where to Find Dividend Fulfillment Ratio Data for Insurance Policies?
Consumers can visit the Insurance Authority website’s ” List of Insurer Websites for Dividend Realization Rates ” to check the dividend realization rates published by insurance companies.
However, if the participating policy is a new product or series with no or only a very short history of dividend realization rates, it may not be meaningful for reference. Consumers can refer to the dividend realization rates of other similar policies from the same company (such as those with similar non-guaranteed benefits or product types).
Dividend Realization Rate Example
Savings insurance returns have often fallen short of expectations and have been criticized. We have also found that some products have consistently failed to meet their dividend realization rates^:
| P Company
Certain Savings Protection Plan – Premiums Paid in Installments |
F Company
Certain Critical Illness Protection Plan |
|
| Currency | HKD | HKD |
| Dividend Category | Reversionary Bonus | Special Bonus |
| Dividend Realization Rate | ||
| First policy year | Not applicable | Not applicable |
| Second policy year | Not applicable | Not applicable |
| Third policy year | Not applicable | Not applicable |
| Fourth policy year | Not applicable | Not applicable |
| Fifth policy year | 63% | Not applicable |
| Sixth policy year | 67% | 51% |
| Seventh policy year | 62% | 50% |
| Eighth policy year | 51% | 50% |
| Ninth policy year | 53% | 50% |
| Tenth policy year | 53% | 50% |
| Tenth policy year+ | 58% | 50% |
- ^Sourced from the insurance company's 2023 report
Why is the dividend realization rate shown as “Not Applicable”?
The reasons behind it being shown as “Not Applicable” may include:
- There are no valid policies for that policy year.
- The dividend amount stated in the benefits description at the time of sale is $0, so the realization rate cannot be determined.
- There are no terminated policies in that policy year (applicable to terminal dividends).
3 Key Points on Dividend Realization Rates in Insurance
1. Dividend realization rates in later policy years may better reflect long-term performance
Generally speaking, since dividends in the early stages of a policy are lower, it is relatively easy for insurance companies to achieve a 100% realization rate. Conversely, in the later stages of the policy, as the dividend amounts increase, the realization rate becomes more variable, making this ratio a better indicator of long-term performance.
2. Pay attention to the proportion of different dividend types’ realization rates
If a participating policy distributes more than one type of dividend, consumers can review the benefits description document to understand the proportion of each dividend type, thereby determining which realization rate is more important.
3. Past performance does not equal future performance
The dividend realization rate only reflects the non-guaranteed returns from a specific past period and does not guarantee the insurance company’s future dividend plans or strategies. Do not use this ratio as the sole factor when deciding to purchase a policy. In fact, before purchasing, you should consider whether the product meets your personal needs, financial capacity, and other factors.
Why "Buy Term and Invest the Rest" Offers More Security Than Investment Savings Whole Life Insurance?
In addition to choosing whole life insurance with lower guaranteed return rates (you can use Bowtie’s exclusive BTIR Calculator to understand the actual return levels of such policies) , you can consider the “Buy Term and Invest the Rest” strategy. This involves purchasing pure protection Term Life Insurance , paired with short-term savings insurance or other investment products that offer higher guaranteed returns. This approach allows you to obtain life insurance coverage and substantial savings returns at a lower premium cost.
Bowtie Term Life is a term life insurance product that provides a lump-sum payout to beneficiaries upon the insured’s death. Its key features include:
- Pure protection with no savings component
- Up to 40 times higher coverage for the same premium compared to typical savings life insurance products*
- As low as $38 per month for $1 million in coverage
- *Based on the standard premium calculation for a 35-year-old non-smoking female insuring a $1 million coverage; Term Life Insurance: Data as of July 1, 2020, for standard premiums of term life insurance (20-year coverage period) in the market
Data Sources
