What is life insurance?
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In principle, the concept of Life Insurance is fairly easy to understand; it is a type of coverage that provides a sum of money if the person who is insured dies while the policy is in force.
However, this form of insurance is designed to be long term and comprehensive, and this basic understanding of what life insurance is can leave much to be desired. Life Insurance is actually a complicated financial instrument which contains far more nuance than may first be apparent. Beyond compensation for the policyholder dying while the life insurance policy is active, this type of insurance protection also offers options for savings and investment opportunities.
While many people utilize life insurance solely for the death benefit they receive for their family, there is far more to this type of coverage than most customers realize.
Why do you need Life Insurance?
Broadly, life insurance is taken out to fulfil either personal or business needs.
Historically there have been a variety of reasons to take out life insurance. Life insurance, in the modern age, was initially created to protect sailors and merchants against their risk of dying at sea. Since then, w the need for life insurance has been expanded, but the risks the product cover you against have not. insurance has not changed.
In your life you may face threats which may see your premature death.
Taking out life insurance against this eventuality is a way to ensure that you are able to properly plan your estate following your departure; leaving your family with the finances they need to maintain their standard of living. Further to this, many life insurance products will offer you the opportunity to use the plan as a Savings, Investment, or Retirement vehicle. Enabling the policyholder to receive more money at the end of the plan (or when it has reached its “maturity”) than they have paid in premiums.
From ensuring that you have adequate funds at the end of your life to cover your expenses, through to maintaining your child’s education fund, there are myriad reasons why a person may wish to take out life insurance; the unexpected can happen and it is important to be prepared. But it is not just individuals who take out life insurance; businesses do to – and often for many of the same reasons.
If a critical employee dies, or a vital vendor passes away, there can be major consequences for a company’s survival.
But how does life insurance operate, and why might a person require life insurance coverage?
How does Life Insurance work in Hong Kong
Life insurance operates under the same principles and practices as other forms of insurance in Hong Kong. Although Life insurance in Hong Kong is not an Indemnity Product, it is governed by the principles of:
Using these principles, Life Insurance is a Contract between the policyholder and the insurer that a death benefit will be paid when a covered life dies. The death benefit to be paid under the policy will depend on the type of life insurance plan purchased, the riders or additional coverage being offered by the policy, and the satisfaction under the policy of the principles of insurable interest and utmost good faith.
Types of Traditional Life Insurance Protection
CCW Global is able to consult and advise customers on Non-Investment Linked Life products.
We are not authorized to conduct business for Investment-Linked Life plans. This is for the simple fact that we are a risk-focused broker, and offer our customers solutions for the risks they face in their lives.
Investment-Linked Life Insurance is not a fully risk-focused product, due to the fact that the policyholder may be able to recoup from the plan than the premiums they have paid. As such, and as a Broker, CCW Global does not advise on products within this business line.
However, having said this, there are many types of non-investment linked life insurance in Hong Kong. The three most commonly encountered types of traditional non-investment life insurance in Hong Kong are:
Term Life Insurance
The simplest form of life insurance (although there are even customization options within this policy type), Term Life Insurance is a timed policy that exists only for a specific duration. Term life insurance has both a start and an end date. If the person being insured dies while the policy is active, then their beneficiaries will receive a financial settlement.
Endowment Insurance
Endowment Life Insurance could be compared to an “open ended term.” Under endowment life insurance if the life being insured dies while the policy is in force then the beneficiaries will receive a settlement. If the life being insured survives the policy’s term, then the policy is considered to have “matured” and the insurance will still pay the face value of the coverage.
It should be noted that premiums associated with Endowment Insurance are normally much higher than those of a simple Term Life product.
Whole of Life Insurance
A Whole Of Life Insurance product is designed to do exactly that – cover the policyholder for the entirety of their life. The main feature of this type of life insurance is that any settlement made by the policy occurs only in the event of the insured’s death and not before. In practice Whole of Life insurance products may end when the insured’s life reaches 99 or 100 years of age, and the insurer will pay the face value of the policy, ending the contract of insurance.
Expanded Life Insurance Cover in Hong Kong
Outside of the death benefit offered by Life Insurance, this type of insurance product can actually afford a wealth of expanded protection benefits.
Accidental Death and Dismemberment
Different insurers will have different forms of cover, but the primary focus of life insurance is coverage against unexpected death. As such, all policies offered by CCW Global will have a death benefit at their core. In the event of the policyholder’s death, then 100 percent of the sum insured by the policy is normally paid as a claim.
However, many life insurance products will also include dismemberment coverage for the loss of limbs or appendages.
Disability Income Protection Rider
If you are injured and unable to work then a rider, or addition, to your life insurance policy containing disability income protection will ensure that you are able to receive financial assistance during your recovery. This money can be used to pay off medical expenses or maintain your lifestyle after a serious accident which leaves you disabled but alive.
Critical Illness Rider
Some life insurance products will offer a Critical Illness rider to their cover. In the event that the policyholder is diagnosed with a specific disease as prescribed by the policy schedule, then they may receive a portion of the plan’s death benefit. Medical evidence of the disease must normally be provided in order to access this cover, but it should be noted that products are also available on a stand-alone basis.
Medical Benefits with Life Insurance
Some life insurance products in Hong Kong have started to include medical coverage within the policy. This is a relatively new development, as medical coverage was previously considered to be part of the “personal accident” line of coverage solutions for many insurance companies.
However, in the modern insurance market basic Medical Protection can be accessed via a life insurance policy via a rider. This protection is designed to cover the policyholder against the costs of simple and basic medical treatment in emergency situations. A useful supplement to life coverage, Medical Benefit riders are often cost effective and accessible.
A Life Insurance Policy made for You
As previously stated, life insurance is a complex product. There are many, many, options and solutions for you to work with an customize. From the type of life insurance policy you purchase, to the many different types of riders you are able to add onto your plan, life insurance is a flexible solution through which policyholders are able to ensure long-term financial planning.
When thinking about life insurance it is often a good idea to look at your loved ones, and understand how your loss or incapacitation would impact them.
Would your business continue to operate if you were hit by a car tomorrow and unable to work? Would your spouse be able to afford the continual bills if you suffered an unexpected stroke? Have you saved enough money for your retirement?
These are all excellent starting points when it comes to looking at your life insurance needs; after all, you know your life better than anyone!
If you would like to consult with a CCW Global insurance broker about the Hong Kong Life Insurance plan which may best fit your specific needs, please Contact Us today