Life Insurance with Savings Plan


Life Insurance with Savings Plan

There are 2 types of savings-oriented life insurance on the market. Some focus primarily on savings, with little to no additional life insurance coverage beyond the policy's cash value or accumulated dividends. Other policies prioritise life insurance coverage, with the insurance company paying out the policy's specified coverage amount and accumulated dividends in the event of the insured's death.

This article primarily discusses savings life insurance designed specifically for savings or wealth accumulation purposes. If you wish to learn about whole life insurance that prioritise life insurance coverage, you can refer to the “What Is Whole Life Insurance“. We will also provide an easy-to-understand analysis of the advantages and disadvantages of savings life insurance, as well as information on who they are suitable for, to help everyone make informed purchasing decision.

What is Savings Life Insurance?

Savings life insurance refers to life insurance policies that encompass a savings component. As a conservative financial tool, savings life insurance allows policyholders to accumulate wealth while also receiving life insurance coverage. After deducting expenses such as sales commissions and administrative fees, insurance companies will invest the premiums in different assets to earn returns.

Typically, insurance companies invest in stable assets such as high-rated government bonds, and may also invest in blue-chip stocks or properties that offer high yields to generate stable returns.

Policyholders can choose to pay fixed premiums on a regular basis or pay the entire premium upfront. At the end of the policy term, the policyholder can receive the guaranteed cash value and non-guaranteed dividends.

  • If the policyholder surrenders the policy early, they will receive the surrender value and/or dividends
  • If the insured person dies during the policy term, the beneficiary can receive a death benefit, which often consists of the guaranteed cash value and non-guaranteed dividends. If this amount is less than the total premiums paid, the beneficiary may receive the total premiums paid or 105% of the total premiums paid (depending on the policy).

Types of Savings Life Insurance

Common types of savings life insurance include (1) Whole Life Insurance, (2) Universal Life Insurance, and (3) Variable Universal Life insurance. For more information, please refer to the “Types of Life Insurance“.

Should you consider Savings Life Insurance?

As insurance companies invest mainly in stable bonds, which can be redeemed at maturity without default risk, savings life insurance can thus offer guaranteed returns in addition to non-guaranteed dividends generated by other investments.

Investment risks are borne by the insurance company (except for investment-linked insurance), making savings life insurance more suitable for individuals who are not willing to take investment risks but wish to earn higher returns than those offered by bank deposit savings plan.

However, there are costs associated with investing through insurance companies (which are reflected in the policy’s cash value), and the decision to invest in such policies depends on one’s investment ability and confidence in the insurance company.

On the other hand, savings life insurance policies generally have fixed premiums and payment periods, which might seem inflexible. However, from another perspective, it can be viewed as a way to discipline oneself to save regularly. In fact, if too much flexibility is allowed, many people may not be able to maintain the habit of saving. Additionally, most savings-oriented life insurance policies require a longer period to generate satisfactory returns, making them more suitable for longer-term financial goals such as retirement planning or children’s education.

Premiums, Sum Assured, and Dividends Reference

The below table provides an example of a savings life insurance policy (pure savings), a whole life insurance policy (with specified life insurance sum assured), and a term life insurance policy (pure insurance), making it easier for you to understand and compare different plans based on factors such as premiums, sum assured, and dividends.

 Savings Life Insurance (Pure Savings)Whole Life Insurance (w/ Specified Sum Assured)Term Life Insurance (Pure Insurance)
Sum AssuredTotal premiums paid or account value (whichever is higher)HK$1,000,000HK$1,000,000
Yearly PremiumHK$60,000HK$21,270HK$456
Benefit TermUntil 100 years-oldUntil 138 years-oldGuaranteed renewal until 85 years-old
Premium AdjustmentLevel premiumLevel premiumStepped premium
Payment Term5 years20 yearsYearly until 85 years-old

1 year later

Death Benefit + Non-guaranteed Dividend (if any)HK$60,000HK$1,000,000HK$1,000,000

65 years-old

Guaranteed Cash ValueHK$347,317HK$632,040HK$0
Non-guaranteed DividendHK$1,351,464HK$550,057HK$0
Death Benefit + Non-guaranteed Dividend (if any)HK$1,698,782HK$1,550,057HK$1,000,000

Pros and Cons of Savings Life Insurance

The advantage of savings life insurance is that it can help policyholders save money regularly, so as to achieve their financial goals. In addition, the premium payment term may offer some flexibility (depending on the specific policy terms).

The disadvantage is that if the policyholder surrenders too early, it may result in a loss, and the amount that can be retrieved may be much lower than the total premiums paid. In the first one or two years, there may be even no cash value available for withdrawal.

  1. Helps policyholders save money regularly
  2. Provides guaranteed cash value (depending on the actual policy terms)
  3. Offers some death benefit
  1. Locked-in period
  2. May result in a monetary loss if surrendered too early
  3. Returns may include non-guaranteed portions (depending on the actual policy terms)
  4. Investment-linked policies have high administrative fees and higher investment risk

If I want to buy life insurance, are there other options?

The above discussion focuses on the pros and cons of savings life insurance as a savings tool. However, for those seeking protection, savings life insurance may not be able to provide sufficient coverage, on the other hand, term life insurance is a good choice.

In comparison, term life insurance premiums are cheaper. Additionally, since the vast majority of premiums are used for protection purposes, the same amount of premium can bring you bigger sum insured.

Let's see how affordable term life can be!

Next article - How to Compare Life Insurance
Before comparing life insurance plans, you need to ask yourself a question: What is the purpose of your life insurance?
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