College of Insuranceology – savings insurance policy
The start of a new life stage often calls for substantial savings to support new goals. Find out the difference between endowment plans and time deposits. One of them could well be your “wonder saver”!
Meeting regular living expenses is one thing, being financially equipped for a new life stage is quite another. Going to university, getting married, buying a property, starting a business, all these goals need to be backed up with a substantial financial reserve. If you’re in the habit of spending everything you make, you’d be left without the financial means to realise your goals. There are many wealth management tools on the market, such as time deposits and fixed-term endowment plans, that can help you reach your savings goals sooner. Let’s look at a quick comparison of the two wealth management tools mentioned above. The more you know, the better your chances of finding your “wonder saver”!
Fixed-term endowment plan vs. time deposit
| Fixed-term endowment plan | Time Deposit | |
| Description | A type of life insurance that has a strong savings element, but is distinct from a bank savings account. The policyholder pays the insurance company a premium in a lump sum or by instalments, and receives the guaranteed cash value when the policy matures. Some fixed-term endowment plans on the market also offer non-guaranteed bonuses and dividends. The life insured receives life protection while policy is in force | You open a time deposit account at a bank and make a deposit. When the time deposit matures, you will recover the principal plus interest, which is higher than that offered by regular bank accounts |
| Term | Longer, typically 2-5 years | Shorter, as short as 1 day |
| Annualised rate of return | Annualised guaranteed rate of return: 1.22-4%# | Non-guaranteed annual interest rate: 0.15-0.7%* |
| Protection | Life protection, but some insurance companies offer additional benefits to make a policy more attractive, such as premium payment deferral in case of unemployment and terminal illness protection, for which some policies do not require additional premiums | In the event of the failure of a member bank of the Deposit Protection Scheme, account holders can recover up to HKD500,000 in eligible deposits under the Deposit Protection Scheme Ordinance |
| Currency | In addition to HKD and USD, some policies also provide other currencies such as GBP and RMB for selection as the policy currency | Different currencies available for selection |
| Entry requirement (depend on payment/deposit amounts) |
Annual premiums can be as low as HKD5,000+ | Then minimum deposit amount for a 12-month time deposit is HKD10,000@ |
| Payment mode | Monthly/yearly/lump sum | Lump sum |
| Risk | If the policyholder surrenders the policy before policy maturity or before the policy’s cash value breaks even, they will lose the principal (premiums). If premiums are not paid by autopay and the policyholder misses premium payments, the policy will lapse and could be terminated by the insurance company, in which case the amount the policyholder recovers could be less than the premium paid | The penalty for early withdrawal of the deposit is the loss of the interest accrued. Investors looking to re-invest the money should take into account possible changes in interest rates. Careful monitoring of interest rate movements is advised |
| # | Based on the annualised guaranteed rates of return updated by 6 financial institutions in March 2021 for their endowment plans (adjusted for different premium payment modes and currencies). The information is for reference only and is subject to the official annualised guaranteed rates of return published by the respective financial institutions. The figures provided do not include the non-guaranteed rates of return of policies in the same insurance plan category. Non-guaranteed rates of return vary based on different insurance companies’ investment performance and other factors. |
| * | Based on the HKD time deposit interest rates updated by 15 banks in Hong Kong on 24 March 2021, provided for reference only. Annual interest rates are not guaranteed and will fluctuate as a result of market conditions. Please refer to the latest annual interest rates published by the respective banks. |
| + | Based on the annual premiums updated by 6 financial institutions in March 2021, provided for reference only. Please refer to the latest annual premiums published the respective financial institutions. |
| @ | This minimum deposit amount for a 12-month time deposit is based on information updated by 15 banks on 24 March 2021 and is provided for reference only. Please refer to the latest minimum deposit requirements published by the respective banks. |
Let’s take a look at the below case studies illustrating the different reasons for choosing savings insurance plans:
(The cases below are summary and hypothetical, and are provided for reference only.)
Different foreign currencies for selectionRon plans to purchase a property in the UK while his son is preparing to attend university there as well. With that in mind, he takes up a fixed-term endowment plan denominated in GBP to pave the way for his overseas property acquisition and his son’s education. When his policy matures, he will collect the maturity benefits in GBP, which allows him to balance his currency risk^ exposure now and smooth his transition to a new life in the UK. |
Accumulating wealth while protecting loved onesRon (the Life Insured)’s endowment plan provides additional terminal illness protection. If he unfortunately becomes terminally ill while the policy is in force, his wife would be able to cope with the financial challenges with the help of the terminal illness benefits she would receive as the policy’s beneficiary. |
Apply in the comfort of your own homeMost savings insurance plans support online application. Even though his daily life is being disrupted by the pandemic, he can pursue his wealth management goals without leaving home. |
When you’re saving up for the future, you’re in a race against the clock. The earlier you start, the sooner you’ll reach your goal. Find out which wealth management tool is right for you, and start acting on your plan for tomorrow, today!
| ^ | You are subject to exchange rate risks. If your insurance policy is denominated in a currency other than the local currency, or if you choose to pay premiums or receive benefits in a currency other than the policy currency, the actual amount paid or received by you will be subject to change according to the prevailing exchange rate between the policy currency and the local / payment currency to be determined by HSBC Life (International) Limited from time to time. Exchange rate fluctuations may have an impact on payment amounts, including but not limited to premium payments, levy payments and benefit payments. |