Life Insurance Dividend Options
In the event that a policyholder purchases a Participating Life Insurance plan, also known as For-Profit life insurance, they should eventually be owed a dividend payment. Dividends under Hong Kong life insurance plans are normally paid in one of three ways:
- A Cash Dividend
- A Revisionary Bonus applied to increase the policy’s face value
- A Terminal Bonus where the value is normally close to the asset share of the fund.
The policyholder will normally be able to select how his dividends are distributed based on the above options. If Cash Dividends are chosen then these may be paid in cash to the policyholder immediately, may be used to pay for the cost of future policy premiums, or may be left earning interest with the insurance company.
Alternatively, the Cash dividend may be used to buy additional coverage under the policy, or can be used to purchase additional insurance in the form of a One Year Term Insurance plan.
Dividends on Life Insurance Policies
Dividends are only available if a policyholder purchases a Participating Life Insurance policy. Normally the amount of dividend to be distributed is linked directly to the experience, or performance, or a pooled fund.
A pooled fund is the total assets the insurance company has created for the purposes of providing a participating policy. The results of the fund, over time, is a product of the fund’s investment yields, claims, and expenses for a given period. Dividends are normally most directly tied to the performance of the pooled funds, with insurers generally only announcing dividend payments when the funds have performed better than expected.
Most insurance companies in Hong Kong will provide detailed examples of how dividends will be distributed on Participating Life Insurance plans, and will always be transparent as to the levels of dividend which are owed to the policyholder.
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